FRASERS LOGISTICS & IND TRUST (SGX:BUOU)
Frasers Logistics & Industrial Trust - Amazon Down Under
- Frasers Logistics & Industrial Trust's FY19 DPU up 4.8% to 7.27 Acts; 2.6% decline in DPU in SGD-terms due to weaker AUD and EUR.
- 10 out of 12 acquisitions completed; remaining two will boost earnings further.
- Achieved portfolio occupancy of 100% with the signing of Amazon in Perth.
- Portfolio valuation increased by A$101.1m mainly due to cap rate compressions in Australia properties.
Maintain BUY and Target Price of S$1.40.
- We maintain our BUY call and Target Price of S$1.40. We like Frasers Logistics & Industrial Trust (SGX:BUOU) for its resilience in income, steady organic growth profile, and 2.0% CAGR over the next two years, driven by
- annual rental escalations in leases, and
- assumed boost from S$250m worth of acquisitions from FY21.
- As Frasers Logistics & Industrial Trust is trading at a yield that supports accretive acquisitions, we maintain our BUY call.
Portfolio occupancy is now 100%
FY19 DPU up 4.8% y-o-y.
- FY19 DPU of 7.27 Acts, a 4.8% increase y-o-y due mainly to acquisitions made during the year. However, DPU in S$-terms was down 2.6%, but this was due to the weaker AUD and EUR against the SGD. See Frasers Logistics & Industrial Trust Announcements; Frasers Logistics & Industrial Trust Dividend History.
Overall cost of borrowing declined
- Overall cost of borrowing declined 0.3% (y-o-y) to 2.2%. This was due mainly to the refinancing of the A$170m borrowings, and the repayment of debt from the proceeds of divestments.
Portfolio occupancy hit 100% in October 2019.
- Vacancy at Perth property that has been vacant for some time now, has been taken up by Amazon on a 5-year lease. Rents signed were in line with current market rates of approximately A$80 psm per month.
- Of the 12 properties acquired, there are two remaining properties in Europe that will be completed in FY20 and will begin contributing to earnings.
Portfolio valuation increased by A$101.1m
- Portfolio valuation increased by A$101.1m on the back of cap rate compression mainly from the Australian properties (29bps). Compression of cap rates for properties in Victoria, New South Wales, and Queensland. Gearing dipped to 33.4% as a result of higher valuations achieved but should creep back up once these properties are completed.
A$4.3m of divestment gains had been distributed in FY19.
- Approximately A$20m of gains remains, and Management has the option to use these funds for acquisitions or future distributions.
potential negative rental reversion
- Of the 3.8% of leases expiring in FY20, three leases are in Australia, and three in Europe. There is potential negative rental reversion for leases in South Australia.
Expect 700,000 sqm of new supply to be added to Melbourne market
- Expect 700,000 sqm of new supply to be added to Melbourne market in FY20, above the 10-year average of 400,000 sqm. To tackle this, Frasers Logistics & Industrial Trust has been proactive in doing early renewals for leases expiring over the next two years.
Rental reversions in FY19 averaged -3.8%, mainly from leases signed in Australia.
- The biggest dip in rental rates (4QFY19) came from the state of Victoria, with two leases reporting a -10.8% and -12.1% reversion.
Frasers Logistics & Industrial Trust continues to look for opportunities in Australia and Europe.
- Currently, yields in Europe seem more compelling, especially in Netherlands where the market is robust and new supply remain limited.
Where we differ: Pricing in more acquisitions.
- We believe that Frasers Logistics & Industrial Trust remains on the hunt for acquisitions to further diversify its asset and earnings base. We see the REIT continuing to tap its Sponsor for opportunities on top of potential third-party opportunities. We have priced in A$250m of new acquisitions in our estimates, to be completed by the end of FY20F, funded by 40%/60% debt/equity ratio.
- Given its large scale in its core markets, we believe that if the Manager is ready to embark on development properties to further drive higher returns in markets where strong capital flows have resulted in limited opportunities to buy income-producing assets at reasonably priced yields.
- See Frasers Logistics & Industrial Trust Share Price; Frasers Logistics & Industrial Trust Target Price.
Derek TAN
DBS Group Research
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Singapore Research Team
DBS Research
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https://www.dbsvickers.com/
2019-11-07
SGX Stock
Analyst Report
1.400
SAME
1.400
