Frasers Logistics & Industrial Trust - Starting FY17 on a bright note
- 1QFY17 DPU above Prospectus forecast.
- Proactive tenant engagement.
- Low gearing ratio 29.7%.
1QFY17 results in-line with our expectations
- Frasers Logistics & Industrial Trust (FLT) reported its 1QFY17 results which met our expectations.
- Gross revenue came in at A$39.7m, which was slightly lower than its IPO Prospectus forecast (proportionally pro-rated for the quarter) by 1.5%.
- The variance can be attributed largely to the delay in acquiring the Martin Brower call option property. This was completed on 30 Nov 2016, versus the projected acquisition date of 1 Oct 2016. However, its DPU of 1.74 S cents for 1QFY17 exceeded its IPO Prospectus forecast by 6.1% and was driven mainly by lower-than-expected finance costs.
- FLT’s gross revenue and DPU formed 24.3% and 25.9% of our FY17 projections, respectively.
Portfolio expected to remain resilient
- Looking ahead, we expect FLT’s portfolio to remain resilient, as it only has 0.6% and 3.5% of lease expiries (by gross rental income) during the years ending 31 Dec 2017 and 31 Dec 2018, respectively.
- Management proactively engages its tenants before the expiry of their leases. 56,108 sqm of new lease and lease renewals were executed in 1QFY17, at a weighted average rental reversion rate of -1.1%. This was largely due to one asset in New South Wales, which saw its rent adjust downwards to market rent level upon forward renewal.
- FLT’s portfolio occupancy stood at a healthy 99.3%, as at 31 Dec 2016, which was an improvement from 98.3% at its listing date.
- It also has a long portfolio WALE of 6.9 years, which we believe buffers its defensive attributes.
- In terms of financial position, FLT has a strong balance sheet, with a low gearing ratio 29.7%, as at end-1QFY17. This implies ample debt headroom of ~A$322m before it reaches a gearing ratio of 40%.
- Inorganic growth opportunities would likely come from its sponsor, in which FLT has a right-of-first-refusal to its 14 existing properties and development pipeline of industrial assets.
- We make some minor tweaks to our assumptions, and adopt a higher risk-free rate of 2.7% (previously 2.4%) in our model to take into account a steeper yield curve environment. Consequently, our DDM-derived fair value estimate is lowered marginally from S$1.10 to S$1.08. Maintain BUY.