• 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 Is Acquiring 6 Properties in Europe

• 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.

Entering the UK Logistics Market

• The acquisitions enable Frasers Logistics & Commercial Trust to further capitalise on the yield of 5.2%, the acquisitions are DPU (+1.8% on a proforma basis) and NAV (+0.9% on a proforma basis) accretive.

Post-acquisition Gearing Remains Low at 36.2%

• 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%.

Reiterate ADD Rating

• We leave our private placement exercise. We continue to like Frasers Logistics & Commercial Trust’s visible inorganic growth potential and income resilience, backed by a long WALE.
• 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.

Source: CGS-CIMB Research - 24 May 2021