FRASERS LOGISTICS & IND TRUST (SGX:BUOU)
FRASERS COMMERCIAL TRUST (SGX:ND8U)
REITs - Frasers Logistics & Industrial Trust, Frasers Commercial Trust Propose Merger
- The proposed merger of Frasers Logistics & Industrial Trust and Frasers Commercial Trust to create a top-10 SREIT.
- Frasers Commercial Trust unitholders to receive S$1.68 per unit in the form of S$0.151 cash and 1.233 new Frasers Logistics & Industrial Trust units issued at S$1.24 per Frasers Logistics & Industrial Trust unit.
- Maintain ADD on Frasers Logistics & Industrial Trust/Frasers Commercial Trust at target prices of S$1.31/S$1.71 respectively.
Proposed merger of FLT and FCOT and asset acquisition
- FRASERS LOGISTICS & INDUSTRIAL TRUST (FLT, SGX:BUOU) and FRASERS COMMERCIAL TRUST (FCOT, SGX:ND8U) have announced a proposed merger via a trust scheme of arrangement; post-merger, Frasers Commercial Trust will be an approved sub-trust of the enlarged REIT and will be delisted.
- Together with the proposed merger, Frasers Logistics & Industrial Trust announced the proposed acquisition of 50% interest in Farnborough Business Park (FBP) from its sponsor for c.£90.1m, conditional on the success of the proposed merger. Frasers Commercial Trust currently holds the remaining 50% interest in Farnborough Business Park.
- The deals will require approvals from the unitholders of both REITs and the deals are expected to be completed by end-Mar/Apr 2020.
- See
S$0.151 cash + 1.233 new FLT units for FCOT unitholders
- Frasers Logistics & Industrial Trust will acquire all units of Frasers Commercial Trust at S$1.68, satisfied by S$0.151 in cash and 1.233 new Frasers Logistics & Industrial Trust units at an issue price of S$1.24, implying a 1.355x gross exchange ratio.
- The consideration represents a 0.6/3.5/8.2% premium to Frasers Commercial Trust’s last traded price, 1-month VWAP and 12-month VWAP respectively.
- See Frasers Commercial Trust Share Price; Frasers Logistics & Industrial Trust Share Price.
Impact of the deals
- The deals will be DPU accretive on a pro-forma FY19 basis to both Frasers Logistics & Industrial Trust and Frasers Commercial Trust unitholders by 2.2%/4.2%, respectively, based the Managers’ estimates. Stripping out the acquisition of Farnborough Business Park, the pro-forma FY19 DPU accretion from the merger alone would be 0.6%/2.5% respectively.
- The enlarged Frasers Logistics & Industrial Trust entity could have a market cap and free float of S$4.2bn/S$3.0bn respectively, according to the Managers, which would put it amongst the top-10 S-REITs by market cap and free float. This could lead to an increase in its weightage in the FTSE EPRA/NAREIT Index, resulting in higher trading liquidity and possibly a wider investor base.
- The larger Frasers Logistics & Industrial Trust portfolio size also enhances diversification and portfolio resilience as its exposure by value to any single asset and geography will be lower than 12%/50% respectively. Its exposure to top-10 tenants by gross rental income would also be lowered to 24% on a pro-forma basis. Meanwhile, potential debt headroom could increase to S$868m, based on a 45% ceiling. Introducing an S$-denominated income source could also lower Frasers Logistics & Industrial Trust’s exposure to FX volatility.
- Post-merger, Frasers Logistics & Industrial Trust’s functional currency would be changed to S$ and FLT would close the counter trading in A$.
Maintain ADD on both FLT and FCOT
- We maintain our ADD ratings on both Frasers Logistics & Industrial Trust and Frasers Commercial Trust pending approvals from both sets of unitholders. We think there is positive re-rating potential given the enlarged entity. Additionally, we are positive on the Farnborough Business Park acquisition due to the DPU accretion and its embedded growth potential.
- See
- Maintain sector NEUTRAL with FRASERS COMMERCIAL TRUST (SGX:ND8U) and MANULIFE US REIT (SGX:BTOU) as top picks.
LOCK Mun Yee
CGS-CIMB Research
|
Ervin SEOW
CGS-CIMB Research
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https://www.cgs-cimb.com
2019-12-02
SGX Stock
Analyst Report
1.310
SAME
1.310
1.710
SAME
1.710
