Frasers Logistics & Industrials Trust (FLT) - UOB Kay Hian 2017-07-31: 3Q17 FLT Results Above Expectations

Frasers Logistics & Industrials Trust (FLT) - UOB Kay Hian 2017-07-31: 3Q17 FLT Results Above Expectations FRASERS LOGISTICS & IND TRUST BUOU.SI

Frasers Logistics & Industrials Trust (FLT) - 3Q17 FLT Results Above Expectations

  • Results of FLT above expectations. 
  • FLT exceeded its own DPU forecast by 6.7%. We raise our target to S$1.20 (from S$1.11) mainly factoring in interest savings, recent acquisitions and favourable exchange rate movements. 
  • Maintain OVERWEIGHT on the sector.



WHAT’S NEW


Results above expectations; maintain BUY with a raised target price of S$1.20 (from S$1.11), based on two-stage DDM (required rate of return: 7.1% and terminal growth rate: 2.5%). 

  • Results were above expectations with core 9MFY17 DPU making up 80.6% of our FY17 DPU estimates. 
  • FLT posted greater-than-expected DPU results due to lower withholding tax on distributable income and interest savings. FLT exceeded its own DPU forecast by 6.7%. We raise our target to S$1.20 (from S$1.11) mainly factoring in the interest savings, recent acquisitions and favourable exchange rate movements.
  • No surprises from revenue or NPI, with much of the surprise coming from the reduction in finance costs from interest savings and lower cost of debt funding. 
  • Finance costs were lower than FLT’s own estimates by 18.8%. The actual weighted average interest rate was 2.8% p.a. as compared with the 3.4% rate forecasted.
  • FLT’s recent acquisition of a portfolio of 7 assets in Australia for A$169.3m (S$174.7m), from its sponsor Frasers Centrepoint Ltd (FCL) would increase FLT's overall portfolio value by 9.7% to A$1.9b and increase overall weighted average lease expiry (WALE) to 6.9 years from 6.7 years. The target portfolio consists four completed properties and three development properties, with built-in annual rental escalations of 3.1%. 
  • Overall occupancy of the target portfolio stands at 100% (including pre-commitments), with WALE at 9.6 years. Management expects DPU accretion of 0.9% on a pro-forma basis. FLT did a private placement of 78m units at S$1.01/share to fund the acquisitions.

Well-managed lease expiry, with no debt expiring in FY17 and FY18. 

  • Gearing rose marginally to 29.3% from 28.9% qoq. A debt headroom of A$517m is available to reach the 45% aggregate leverage limit.


Outlook. 

  • Management sees that Australian investment sales volume remains constrained due to the low levels of investment-grade stock. Hence, there remains pentup demand for a smaller supply of stabilised assets, sale and leaseback activity have grown such that prime yields are further compressed. 
  • Occupier demand has remained strong in Melbourne and Sydney with a near doubling in 10-year average rents in Sydney and improved take-up rates in Melbourne. Brisbane shows improving demand for newer stock, but vacancy remains elevated.




Vikrant Pandey UOB Kay Hian | http://research.uobkayhian.com/ 2017-07-31
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 1.20 Up 1.110



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