Frasers Logistics & Industrial Trust - OCBC Investment 2017-02-07: Starting FY17 on a bright note

FRASERS LOGISTICS & IND TRUST BUOU.SI

Frasers Logistics & Industrial Trust - Starting FY17 on a bright note

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.

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.

Andy Wong Teck Ching CFA OCBC Investment | http://www.ocbcresearch.com/ 2017-02-07

OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 1.08 Down 1.100