Frasers Logistics & Industrial Trust - OCBC Investment 2017-11-03: Remains As One Of Our Top Picks

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FRASERS LOGISTICS & IND TRUST BUOU.SI

Frasers Logistics & Industrial Trust - Remains As One Of Our Top Picks

• High occupancy of 99.4%.
• Slight cap rate compression.
• Raise FV and maintain BUY.

4QFY17 results within our expectations 

• Frasers Logistics & Industrial Trust (FLT) reported its 4QFY17 results which met our expectations. Gross revenue and adjusted NPI of A$42.2m and A$32.3m were 4.8% and 4.7% YoY higher than its IPO forecast, respectively.
• DPU came in at 1.77 S cents, or 8.6% above FLT’s forecast. This was largely driven by inorganic growth as management had actively pursued acquisitions since its listing. For its 12MFY17 performance (period from 1 Oct 2016 to 30 Sep 2017), gross revenue was A$163.1m, and this formed 99.1% of our projection. DPU of 7.01 S cents constituted 101.4% of our forecast.
• If we look at the period from listing (20 Jun 2016) to 30 Sep 2017, DPU came in at 8.85 S cents, which beat FLT’s IPO forecast by 6.1%.

High occupancy maintained; compression in cap rate 

• Operationally, FLT maintained a high portfolio occupancy of 99.4%, with a long WALE of 6.75 years. Management signed 172,193 sqm of renewals/new leases since its listing, including 31,947 sqm in 4QFY17. A remarkable tenant retention rate of 94.4% was achieved. 
• Although average rental reversion was -15.9% in 4QFY17 and -8.2% for the 12-month period in FY17, we believe it was largely attributable to rents reverting back to market levels upon lease expiry as built-in annual rental escalations for FLT’s leases typically outpace market rental growth.
• From a portfolio valuation perspective, FLT saw a slight compression in cap rates by 16 bps to 6.71%, largely due to New South Wales (24 bps compression), but partially offset by South Australia (+66 bps). Nevertheless, FLT’s South Australia assets form only 1.8% of its portfolio valuation.

Maintain BUY 

• We factor in FLT’s full-year results in our model, and raise our FY18 and FY19 DPU forecasts by 2.3% and 2.6%, respectively, as we incorporate a higher AUD-SGD assumption. 
• Rolling forward our valuations, our fair value estimate increases from S$1.22 to S$1.25. 
• Maintain BUY, supported by an attractive FY18F distribution yield of 6.4%.

Wong Teck Ching Andy CFA OCBC Investment | http://www.ocbcresearch.com/ 2017-11-03

OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 1.25 Up 1.220