• Frasers Logistics & Industrial Trust's 4QFY9/19 DPU of 1.73 Scts was broadly in line due to new acquisitions.
• Occupancy boosted to 100% post quarter-end with new lease from Amazon.
• Maintain ADD with a higher Target Price of S$1.31 to incorporate the full-year FY19 results, update our FX and Australian risk-free rate assumptions.

4QFY9/19 Broadly In-line Due to New Acquisitions

• FRASERS LOGISTICS & INDUSTRIAL TRUST (SGX:BUOU)'s 4QFY9/19 DPU of 1.73 Scts (-2.8% y-o-y, flat q-o-q) came in at 27% of our FY9/19 forecasts due to contributions from its new acquisitions in Europe and Australia but partially offset by some divestment activities in Australia.
• Frasers Logistics & Industrial Trust had completed 10 out of 12 acquisitions previously announced and is looking to complete the remaining two acquisitions of German properties in early-FY9/20.
• For full-year FY9/19, DPU of 7.00 Scts formed 109% of our FY9/19 forecast due to outperformance in the 9M/19, attributable to new acquisitions.

100% Occupancy as Amazon Signs Lease Post Quarter-end

• For FY9/19, Frasers Logistics & Industrial Trust completed 122,554 sqm of leasing, representing 5.5% of gross lettable area and achieved a 91.2% tenant retention rate with an average reversion of -3.8% as portfolio rents continued to be higher than market rents.
• Post quarter-end, Frasers Logistics & Industrial Trust signed a lease with Amazon to fill up its vacant space, which led to portfolio occupancy rising to 100%.
• Demand-supply dynamics remain supportive, with take-up levels of 2.3m sqm being above new supply of 1.3m sqm; vacancy levels are at 5-year lows across key cities of Sydney, Melbourne and Brisbane. The strong investor demand for industrial space has also led to yield compression, with Frasers Logistics & Industrial Trust recording a A$101m revaluation gain.

Seeing the Benefits of A$ Cash Rate Cuts

• Finance costs in 4QFY9/19 were 21.7% lower y-o-y due to interest savings from the refinancing of A$170m borrowings and the repayment of debt with divestment proceeds. In line with the declining A$ cash rate, Frasers Logistics & Industrial Trust’s weighted average interest rate was 2.2% (2.5% in 4QFY9/19).
• Aggregate leverage declined to 33.4% from 35.4% although we think this could creep up slightly once the remaining two German acquisitions are completed. As of 30 Sep 2019, Frasers Logistics & Industrial Trust has a debt headroom of A$781m prior to reaching the 45% limit.

Maintain ADD as We Raise Our DDM-based Target Price to S$1.31

• We update our forecasts to incorporate the full-year FY19 numbers, update our A$ and £ FX assumptions and lower our Australian risk-free rate; these led to 0.7-6.8% increases in our FY20-21F DPU.
• We think Frasers Logistics & Industrial Trust’s key investment merits are
  1. its ability to tap its sponsor’s pipeline of 39 properties in Europe and Australia,
  2. supportive demand-supply dynamics in both markets, and
  3. low earnings risk as a result of its long WALE and low upcoming expiries.

Source: CGS-CIMB Research - 6 Nov 2019