Frasers Logistics & Industrial Trust - DBS Research 2017-02-07: Steady returns with firepower to acquire

Frasers Logistics & Industrial Trust - DBS Vickers 2017-02-07: Steady returns with firepower to acquire FRASERS LOGISTICS & IND TRUST BUOU.SI

Frasers Logistics & Industrial Trust - Steady returns with firepower to acquire

  • 1Q17 DPU came in 6.1% above IPO forecasts.
  • Steady operational results with high occupancy rates.
  • Minimal expiries in FY17 imply solid income visibility.
  • Under-geared balance sheet offers acquisition ammunition.



Maintain BUY, TP S$1.10. 

  • We believe that Frasers Logistics & Industrial Trust (FLT) remains attractive with a prospective yield of close to 7.0%. 
  • With an under-geared balance sheet, FLT has the ability to surprise on the upside through acquisitions, if executed from a myriad of opportunities available from its sponsor. 
  • Maintain BUY and TP of S$1.10.


Steady returns supported by portfolio of long leases. 

  • FLT 1Q17 came in 6.1% above IPO forecasts, mainly driven by pro-active capital management initiatives which saw lower-than-projected interest costs at 2.8% vs 3.4% (forecasted during IPO). 
  • Revenue and net property income of A$39.7m and A$30.7m respectively were marginally below forecasts due to a delay in completion of its Martin Bowyer acquisition. 
  • Portfolio occupancy is still steady at close to 99%. 
  • The forward outlook remains stable given limited expiries over the coming year. 
  • Estimates are tweaked higher as we reduce our interest-cost assumptions.


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.


Valuation

  • 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.




Derek TAN DBS Vickers | Mervin SONG CFA DBS Vickers | Rachel TAN DBS Vickers | http://www.dbsvickers.com/ 2017-02-07
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.100 Same 1.100



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