Frasers Logistics & Industrial Trust - OCBC Investment 2017-05-08: Robust Performance

Frasers Logistics & Industrial Trust - OCBC Investment 2017-05-08: Robust performance FRASERS LOGISTICS & IND TRUST BUOU.SI

Frasers Logistics & Industrial Trust - Robust performance

  • 2QFY17 DPU above prospectus forecast.
  • Minimal near-term lease expiries.
  • Healthy gearing ratio 28.9%.

2QFY17 results slightly exceeded our expectations 

  • Frasers Logistics & Industrial Trust (FLT) reported its 2QFY17 results which beat its IPO prospectus forecast and also slightly exceeded our expectations. 
  • Gross revenue and NPI came in at A$40.9m and A$34.6m, or 1.6% and 2.4% above FLT’s forecast, respectively. 
  • DPU of 1.75 S cents exceeded FLT’s IPO prospectus projection by 6.7% due largely to lower-than-expected finance costs. 
  • For 1HFY17, FLT’s gross revenue and DPU of A$80.6m and 3.49 S cents constituted 49.6% and 51.9% of our forecasts, respectively.

Largely resilient portfolio 

  • Operationally, FLT’s portfolio occupancy remained high at 99.3% (unchanged QoQ), while WALE is healthy at 6.7 years. There were two major new leases/renewals signed recently.
  • Negative rental reversions came in at 4.85% for 2QFY17 and 1.68% for 1HFY17. However, this is understandable as FLT’s average fixed rental escalation of ~3.2% per annum is typically higher than market rental growth and hence the rental rates are usually reverted back to market rates upon the signing of renewal and new leases.
  • In addition, for the case of the lease surrendered by Australian Geographic Retail Pty Ltd, the compensation received helped to negate the negative rental reversion of the new lease signed.
  • Looking ahead, we expect FLT’s portfolio to remain resilient, as it only has 0.2% and 3.6% of lease expiries (by gross rental income) for the remainder of FY17 and FY18, respectively. In terms of financial position, FLT has a low gearing ratio 28.9%, as at 31 Mar 2017.

Maintain BUY 

  • From our understanding, FLT has yet to hedge its estimated distributable income for FY18 and will look to do so this month by taking a staggered approach. 
  • On hindsight, perhaps FLT should have entered into its currency hedges for FY18 earlier, as the AUD has depreciated ~5% against the SGD since its recent peak in mid-Feb.
  • Notwithstanding this, we believe our AUD-SGD assumption for FY18 is conservative at A$1.00 : S$1.02. Taking into account this set of results, we raise our FY17 and FY18 DPU forecasts by 2.8% and 3.3%, respectively, as we lower our finance cost assumptions. Correspondingly, our fair value estimate is bumped up from S$1.08 to S$1.12. Maintain BUY on FLT.

Andy Wong Teck Ching CFA OCBC Investment | http://www.ocbcresearch.com/ 2017-05-08
OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 1.12 Up 1.080