Frasers Logistics & Industrial Trust - Positioned to grow
Maintain BUY, TP S$1.10.
- We believe that Frasers Logistics & Industrial Trust (FLT) offers good returns with a prospective yield of close to 7.0% which is attractive in the current low-yield environment.
- With an under-geared balance sheet, FLT is poised to grow through acquisitions from a visible pipeline of development and completed properties from their sponsor. Maintain BUY and TP at S$1.10.
- In addition, upside to earnings will come potentially from the rollover of forex hedges (currently A$1 to S$1) to current spot rates which are 6% higher.
Maiden distribution exceeds forecasts.
- FLT’s maiden distribution (DPU) of 1.84 Scts exceeds IPO forecasts by close to 2.8%. This was mainly due to lower-than-projected interest costs at 2.8% vs 3.4% (forecasted during IPO).
- Revenue and net property income of A$43.1m and A$32.7m were marginally ahead of IPO forecasts at +0.8% and 0.02% respectively. Portfolio occupancy increased marginally to 99.2%.
- The forward outlook remains stable given limited expiries over the coming year.
Visible ROFR pipeline.
- The Sponsor has granted FLT a right of first refusal (ROFR) over any of the completed income-producing industrial properties it intends to divest. This currently comprises 11 properties which can be acquired in the medium term.
- BUY maintained, TP S$1.10. Our TP is based on DCF and we have not assumed any further acquisitions.
- Our TP offers 15% upside to current price.
Key Risks to Our View
- Currency risk. As the manager pays its distributions in SGD but earns in AUD, the REIT is exposed to currency fluctuations. The manager attempts to reduce foreign fluctuations by hedging distributions regularly.