Frasers Logistics & Commercial Trust - CGS-CIMB Research 2021-05-24: On An Acquisition Growth Path

FRASERS LOGISTICS & COMMERCIAL TRUST (SGX:BUOU)

Frasers Logistics & Commercial Trust - On An Acquisition Growth Path

Frasers Logistics & Commercial Trust is acquiring six properties in Europe for a total of S$548.7m.
The acquisitions are DPU and NAV accretive while post-acquisition gearing would be 36.2%.
Reiterate ADD with an unchanged DDM-based target price of S$1.57.

Frasers Logistics & Commercial Trust (SGX:BUOU) proposed the acquisition of six properties (4 from sponsor, 2 from third parties) in Germany, Netherlands and the UK for S$548.7m or 2.5% discount from the appraised values.
The properties have a total net lettable area of 123,328 sq m. An estimated 54.8% of the properties, by purchase value, are logistics and industrial assets; the remaining 45.2% are office and business parks properties. They are 97.4% occupied (UK: 95.7-100%, Germany and Netherlands: 100%) with a weighted average lease to expiry of 9.1 years.
Notable tenants include Hermes, Gymshark, Hofer Powertrain, BASF, Oracle and Hendi.
Frasers Logistics & Commercial Trust targets to complete the acquisitions in Jun 2021. The UK properties comes with a 24-month rental guarantee of £3.9m for existing vacant spaces.

The acquisitions enable Frasers Logistics & Commercial Trust to further capitalise on the robust European logistics sector. Moreover, purchase of the UK properties, Blythe Valley Park (BVP) and Connexion, also marks the trust’s entry into the UK logistics segment. BVP is an integrated logistics and business park with an established and well-connected mixed-use campus for the new economy sectors. In addition, it has 3ha of land for future development.
Post acquisitions, 58% of Frasers Logistics & Commercial Trust’s assets still remain focused on the logistics and industrial (L&I) sector, with e-commerce tenants making up a larger 34% of its L&I tenant base. Portfolio committed occupancy remains high at 96.8% with a WALE of 5 years.
Based on an initial net property income (NPI) yield of 5.2%, the acquisitions are DPU (+1.8% on a proforma basis) and NAV (+0.9% on a proforma basis) accretive.

The total transaction cost of S$501.1m will be financed via debt as well as a private placement of 220m new units at S$1.363-1.399 each, with an option to upsize the offer by 20m units to raise a maximum of S$335.8m. We estimate Frasers Logistics & Commercial Trust’s post-acquisition gearing at 36.2%.

We leave our FY21-23F DPU estimates for Frasers Logistics & Commercial Trust unchanged pending the completion of the deal and private placement exercise. We continue to like Frasers Logistics & Commercial Trust’s visible inorganic growth potential and income resilience, backed by a long WALE.
See
Potential re-rating catalyst: accretive new acquisitions.
Downside risks: drag from retail operations which account for a small 1.8% of Frasers Logistics & Commercial Trust’s overall income at end-1HFY21, and A$ and € volatility.

LOCK Mun Yee CGS-CIMB Research | EING Kar Mei CFA CGS-CIMB Research | https://www.cgs-cimb.com 2021-05-24

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