Frasers Logistics & Industrial Trust - OCBC Investment 2018-05-09: No Surprises In 2QFY18

Frasers Logistics & Industrial Trust - OCBC Investment 2018-05-09: No Surprises In 2qfy18 FRASERS LOGISTICS & IND TRUST SGX: BUOU

Frasers Logistics & Industrial Trust - No Surprises In 2QFY18

  • Frasers Logistics & Industrial Trust 2QFY18 DPU rose 3.4% y-o-y.
  • Long WALE, high occupancy.
  • AUD weakness to impact.

2QFY18 results within our expectations

  • Frasers Logistics & Industrial Trust’s (FLT) 2QFY18 results came in within our expectations. 
  • Gross revenue rose 6.4% y-o-y to A$43.6m and NPI grew 3.3% to A$35.7m, while adjusted NPI (excluding straight lining adjustments for rental income and after adding back straight lining adjustments for ground leases) jumped 8.1% to A$33.4m. This was driven largely by the acquisitions of four completed properties in FY17 and contribution from the practical completion of two development assets in Oct and Nov last year.
  • DPU in AUD terms declined 2.9% y-o-y to 1.70 A cents as only 67.5% of management fees were taken in units in 2QFY18, versus 100% in 2QFY17. If 100% of the management fees were taken in units instead, 2QFY18 DPU would have grown 1.1% to 1.77 A cents. In SGD terms, due to a currency hedge rate of A$1: S$1.0647 which FLT entered into (2QFY17: A$1: S$1.0014), DPU grew 3.4% y-o-y to 1.81 S cents. 
  • For 1HFY18, FLT’s gross revenue and DPU improved 6.7% and 3.4% to A$86.0m and 3.61 S cents, forming 49.1% and 50.3% of our FY18 forecasts, respectively.

Occupancy and WALE remains firm, but reversions negative

  • There were three leases renewed/signed in 2QFY18. Although rental reversions were negative at 7.3%, the three leases carry annual rent increments of 3.15%-3.25%, while two of the leases have long tenure of 7.1 and 10 years, thus providing visibility. Occupancy continues to be high at 99.4%, while WALE is healthy at 6.75 years. 
  • FLT’s balance sheet remains strong, with a gearing ratio of 30.5%, as at 31 Mar 2018.
  • Approval from unitholders has been obtained on 8 May for its proposed acquisition of a portfolio of 21 prime industrial properties in Germany (17) and the Netherlands (4).

Incorporate weaker AUD assumption

  • As FLT has a policy of hedging its FX on a rolling six months basis, we believe its currency hedge rates for its 2HFY18 distributions are likely to come in lower than its 1HFY18 hedges. We now incorporate a weaker AUD-SGD assumption in our model (FY19-FY22F: A$1: S$1.01).
  • Correspondingly, our fair value declines to S$1.21 from S$1.25. As of the closing price on 8 May, FLT is offering an attractive FY18F distribution yield of 7.0%.
  • (Maintain BUY).

Wong Teck Ching Andy CFA OCBC Investment | 2018-05-09
SGX Stock Analyst Report BUY Maintain BUY 1.21 Down 1.250