$$$ KPO and CZM $$$: Frasers Logistics & Industrial Trust Preferential Offering

Thursday, May 10, 2018

Frasers Logistics & Industrial Trust Preferential Offering

Frasers Logistics & Industrial Trust just concluded its private placement (KPO did not get an offer this time round unlike Keppel DC REIT Private Placement which was a pleasant surprise!) and provided more information on the preferential offering to fund its proposed acquisition of 21 prime industrial properties in key global logistics hubs in Germany (17) and the Netherlands (4). You can find the official announcement here.

Some of the readers may know that KPO secretly loves rights issue as it provides an opportunity for existing shareholders to increase their investment at a much lower cost and without any commission as compared to buying off the market. Having said that, not all rights issue is good and there is a need to evaluate whether the cash call is beneficial to the existing shareholders.

Current/Latest Numbers
Price: $1.09
Dividend/Distribution Per Unit (DPU) for FY2017: $0.0701
Dividend Yield (Assuming DPU remain constant for FY2018): 0.0701 / 1.09 = 6.43%
NAV (2QFY18): S$0.91 (Based on exchange rate of A$1.00 : S$1.0125)
PB: 1.198 (19.8% premium!)
Gearing: 30.5% (MAS limit is 45%, the lower the better)
WALE (Weighted Average Lease Expiry): 6.75 years (the higher the better)
Total shares based on 2QFY18 (including manager's fees): 1,523,985,999

Private Placement:
333,199,000 units at an issue price of S$0.987 per unit (initial issue price range: between S$0.962 and S$0.987)

Preferential Offering:
A pro rata and non-renounceable preferential offering of 152,153,437 new units on the basis of 1 new unit for every 10 existing units at an issue price of between S$0.942 and S$0.967. Given that the issue price of the private placement was priced at the upper bound, we can expect the same for the preferential offering.

Do note that the numbers are just estimated and the assumption is that the acquisition happened since listing/IPO date to 30 September 2017. Looking at the DPU in Australian cents, the acquisition is probably (remember the numbers are just an illustration) slightly yield accretive. They have also conservatively kept the exchange rate at A$1 : S$1.

The NAV remained roughly the same after the acquisition based on the provided illustration. What I do not like is that the gearing ratio would increase from 30% to 36% for a measly increase of 1.7% in DPU and no change in NAV. On the bright side, WALE will be increased to 7.1 years and the acquisition is not diluting the yield while a preferential offering allows existing shareholders to join in the fun.

We have 8,000 shares currently at an average price of $0.962. As a result, we would have 800 non-renounceable (means it cannot be sold - either exercise it or let it expire) shares.

If the issue price is S$0.942, we will be looking at:
Dividend Yield (Assuming DPU remain constant for FY2018): 0.0701 / 0.942 = 7.44%
PB: 0.942 / 0.91 = 1.035 (3.5% premium)

Average Price: (0.962 * 8,000 + 0.942 * 800) / 8,800 = $0.960
Average Yield: 0.0701 / 0.960 = 7.30%

If the issue price is S$0.967, we will be looking at:
Dividend Yield (Assuming DPU remain constant for FY2018): 0.0701 / 0.967 = 7.25%
PB: 0.967 / 0.91 = 1.063 (6.3% premium)

Average Price: (0.962 * 8,000 + 0.967 * 800) / 8,800 = $0.962
Average Yield: 0.0701 / 0.962 = 7.28%

If you are not an existing shareholder and are thinking of joining the fun, you will be looking at the following numbers instead:
Average Price: (1,000 * 1.09 + 100 * 0.967) / 1,100 = 1.079
Dividend Yield (Assuming DPU remain constant for FY2018): 0.0701 / 1.079 = 6.50%
PB: 1.079 / 0.91 = 1.19 (19% premium)

You will be entitled to S$0.043 dividends but do take note of the potential capital loss at an average price of $1.079. The price would definitely drop significantly by 18th May when it goes XD and XO.

Regardless, with the preferential offering, CZM and I will be looking at a sustainable (long WALE, high occupancy) dividend yield of > 7% which is pretty decent. The fun part which I love is the ability to oversubscribe, the more the merrier!

Update on 25th May 2018: Subscribe to 800 and oversubscribe by 6,200!

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  1. Hi KPO,

    Thanks for the analysis. On the conservative side but fair enough. I'm in the buytojoininthefun camp. Hopefully can get a decent over allotment to bring down my cost basis. Huat ah!

    A quick comment that the average price of the private placement + PO is about 97-98 cents, implying a 1% yield accretion based on their sensitivity analysis in their announcement circular. So its less than 1.7% yield accretion.


    1. Hi KK,

      Oh. I simply took the number from their report/slides.

      Huat ah!