Frasers Logistics & Industrial Trust - CIMB Research 2018-01-26: 1QFY9/18 Two Thumbs Up

FRASERS LOGISTICS & IND TRUST BUOU.SI

Frasers Logistics & Industrial Trust - 1QFY9/18 Two Thumbs Up

Frasers Logistics & Industrial Trust (FLT)'s 1QFY9/18 DPU of 1.80 Scts (+3.4% y-o-y) was in line with our and Bloomberg consensus expectation, at 26% of our full-year forecast.
Portfolio occupancy remained at 99.4%. FLT forward renewed three leases expiring in FY19F (total GLA of 66.7k sqm) with average reversion of -5.1%.
FLT has no lack of options. Its ROFR to its sponsor’s projects currently includes 16 assets in Australia and 25 assets in Europe. Our optimistic outlook on FLT is underpinned by the favourable Australian industrial market and its ability to tap Frasers Centrepoint Limited’s development pipeline.

Frasers Logistics & Industrial Trust (FLT)'s 1QFY18 DPU grew 3.4% y-o-y to 1.80 Scts, lifted by the four completed properties acquired in Aug 2017 as well as contributions from the Beaulieu and Stanley Black & Decker facilities which were completed in Oct and Nov 2017, respectively.
DPU was also aided by higher hedged FX rate of A$1:S$1.0583 (1QFY17: A$1:S$1).
We note that during the quarter the manager had elected to receive 78.1% of management fees in units (1QFY17: 100%).

Portfolio occupancy remained at 99.4% at end-1QFY18. FLT forward renewed three leases expiring in FY19F (total GLA of 66.7k sqm) with average reversion of -5.1% -- the Agility Logistics lease at 20-22 Butler Boulevard at -4.6% reversion; the B&R Enclosures lease at -13.6% (note that the lease was extended for 10 years and Brisbane market rent has slipped); and flat reversion for the Unilever lease.
Asset enhancement initiative (AEI) for the Stramit facility has completed; the manager expects 10% return on the AEI cost.

Given the higher borrowings to finance its portfolio transactions in Aug 2017, gearing increased to 30.9% as at end-1QFY18 (4QFY17: 29.3%).
The weighted average cost of debt was unchanged at 2.8% p.a.

We note that Frasers Logistics & Industrial Trust (FLT) has the right of first refusal (ROFR) to its sponsor’s development pipeline, which currently includes 16 assets in Australia and 25 assets in Europe (owing to Geneba Properties, Frasers Centrepoint Limited’s newly acquired European logistics and industrials platform). Hence, we believe FLT has good options to consider where to best deploy its capital.

A favourable Australian industrial market underpins our optimistic outlook on Frasers Logistics & Industrial Trust (FLT). We also like its ability to tap Frasers Centrepoint Limited’s development pipeline.
We decrease our FY18F-20F DPU by 1.8-2.3% as we now assume that the manager would receive only 80% of management fees in units (previously 100%).
We raise our DDM-based Target Price (to S$1.24) on lower COE of 8.4% (previously 8.7%).
Downside risks could come from an unexpected downturn in Australia industrials and/or unfavourable acquisitions.

YEO Zhi Bin CIMB Research | LOCK Mun Yee CIMB Research | http://research.itradecimb.com/ 2018-01-26

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