Frasers Logistics & Industrial Trust - OCBC Investment 2018-08-03: New Kid On The European Block

Frasers Logistics & Industrial Trust - OCBC Investment Research 2018-08-03: New Kid On The European Block FRASERS LOGISTICS & IND TRUST SGX:BUOU

Frasers Logistics & Industrial Trust - New Kid On The European Block

  • FLT's 3QFY18 DPU rose 2.9% y-o-y.
  • Aggregate leverage of 36.3%.
  • Firm market rents.

3QFY18 results within our expectations

  • Frasers Logistics & Industrial Trust’s (FLT) 3QFY18 results came in within our expectations.
  • Gross revenue and NPI jumped 22.6% and 21.7% y-o-y to A$49.3m and A$41.1m, respectively. Adjusted NPI (excluding straight-lining adjustments) improved 27.4% y-o-y to A$39.3m. This was driven largely by contribution from acquisitions in Australia which achieved practical completion after 3QFY17, annual fixed rental increment in its Australia portfolio and an incremental NPI of A$5m (~EUR3.2m) from its Europe portfolio acquisition in May this year.
  • DPU in SGD terms grew 2.9% y-o-y to 1.80 S cents due to a better currency hedge rate of A$1: S$1.0214 which FLT entered into (3QFY17: A$1: S$1.002), but partially offset by an enlarged unit base from its equity fund raising exercise.
  • For 9MFY18, FLT’s adjusted NPI increased by 14.8% to A$106.1m, while DPU of 5.41 S cents was an improvement of 3.2% and formed 75.4% of our FY18 forecast.

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Portfolio metrics still in the pink of health

  • Overall portfolio metrics remained healthy, with high occupancy of 99.3% (Australia: 99% and Europe: 100%) and long WALE of 7.0 years. 
  • Frasers Logistics & Industrial Trust has only 0.1% and 3.4% of its leases expiring for 4QFY18 and FY19, respectively. Rental reversions in 3QFY18 were flat, versus declines seen in 2QFY18 (-7.3%) and 1QFY18 (-5.1%).
  • Its aggregate leverage was 36.3%, as at 30 Jun 2018, an increase compared to 30.5% in end- 2QFY18 due to the acquisition of the Europe portfolio.

Industrial demand-supply dynamics largely healthy

  • Although there has been an increase in industrial supply in Sydney and Melbourne, demand continues to be strong, especially in Sydney. This can be seen from the 4.6% y-o-y (+0.7% q-o-q) growth in prime grade net face rents to A$136 psm p.a. in 2Q18, according to JLL data. For Melbourne, prime grade net face rents rose 1.1% y-o-y to A$92 psm p.a. There were also signs of stabilisation in Brisbane (rents +0.9% q-o-q after 2 consecutive quarters of flat rentals).
  • We incorporate Frasers Logistics & Industrial Trust’s Europe acquisition and proposed divestment of its 80 Hartley Street property (sales consideration of A$90.5m or 40.3% premium to its book value) in our model. Correspondingly, our fair value moves from S$1.21 to S$1.18.

Wong Teck Ching Andy CFA OCBC Investment Research | https://www.iocbc.com/ 2018-08-03
SGX Stock Analyst Report BUY Maintain BUY 1.18 Down 1.210