FRASERS LOGISTICS & IND TRUST (SGX:BUOU)
Frasers Logistics & Industrial Trust - Results In Line, But Upside Limited For Now
- Downgrade to HOLD due to limited upside pending completion of its merger with Frasers Commercial Trust (SGX:ND8U).
- Frasers Logistics & Industrial Trust's 1QFY9/20 DPU of 1.74 Scts (-2.2% y-o-y, +0.5% q-o-q) was in line with our and consensus forecasts; DPU impacted by 2019 acquisitions and weaker A$.
- Portfolio remains stable with 100% occupancy and limited lease expiries of 2.2% of gross rental income in FY20.
1QFY9/20 DPU in line at 25% of our FY20 forecast
- Frasers Logistics & Industrial Trust (SGX:BUOU)'s 1QFY9/20 DPU of 1.74 Scts (-2.2% y-o-y, +0.6% q-o-q) was in line with our and Bloomberg consensus forecasts due to higher revenue in A$64.4m (+8.2% y-o-y), driven by acquisitions made in 2019, albeit offset by a 3.2% lower hedged A$ rate against the S$. (Frasers Logistics & Industrial Trust Announcements)
- In A$ terms, 1QFY20 DPU was 1.83 Acts (+1.1% y-o-y, +0.5% q-o-q). (Frasers Logistics & Industrial Trust Dividend History)
Full marks for occupancy in 1Q
- Frasers Logistics & Industrial Trust completed four leasing transactions, including a 5-year lease with Amazon in Perth, leading to a 100% portfolio occupancy rate; the other three leases were renewed at an average reversion of -0.9%. As at 31 Dec 2019, Frasers Logistics & Industrial Trust has four leases, representing 2.2% of gross rental income (GRI), up for renewal in FY20.
- We understand that Frasers Logistics & Industrial Trust is confident of renewing the majority of its expiring leases. Frasers Logistics & Industrial Trust generally expects a slight uptick in reversions for Europe, but continued negative reversions in Australia as the growth in passing rent from rental escalations exceeds the growth in market rents. Frasers Logistics & Industrial Trust continues to have a well spread out lease expiry profile with a long WALE of 6.23 years.
Declining cost of debt due to lower A$ cash rate
- Aggregate leverage increased to 35.5% in 1QFY20 from 33.4% in the previous quarter due to the completion of two German acquisitions announced in Jul 2019. Frasers Logistics & Industrial Trust’s weighted average cost of debt for 1QFY20 was 2.0%, lower than the 2.2% in FY19.
- We think Frasers Logistics & Industrial Trust could have additional debt savings upon refinancing, assuming debt tenor remains constant. As of now, Frasers Logistics & Industrial Trust has A$652m debt headroom before reaching the regulatory 45% gearing limit. Post-merger with Frasers Commercial Trust, this could rise to S$868m, according to Frasers Logistics & Industrial Trust.
Downgrade to HOLD
- As we update our A$ and € FX rates based on assumptions from CIMB Treasury, lower our cost of debt assumptions due to its declining A$ cash rate, and tweak rental rates to account for renewals, our FY20-22F DPU estimates decline 0.2-1.6%. We have not incorporated any impact from the Frasers Commercial Trust merger in our estimates.
- We downgrade Frasers Logistics & Industrial Trust to HOLD based on valuations as we see limited upside and downside due to the ongoing merger and limited upcoming expiries. Frasers Logistics & Industrial Trust said it does not have any acquisitions in the pipeline until after the merger completes in end-Mar/Apr 2020.
- See Frasers Logistics & Industrial Trust Share Price; Frasers Logistics & Industrial Trust Target Price; Frasers Logistics & Industrial Trust Analyst Reports; Frasers Logistics & Industrial Trust Dividend History; Frasers Logistics & Industrial Trust Announcements; Frasers Logistics & Industrial Trust Latest News.
- Changes in interest and FX rates continue to be both positive and negative catalysts to its share price.
LOCK Mun Yee
CGS-CIMB Research
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Ervin SEOW
CGS-CIMB Research
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https://www.cgs-cimb.com
2020-02-07
SGX Stock
Analyst Report
1.310
SAME
1.310
