Frasers Logistics & Industrial Trust - OCBC Investment 2018-09-07: A Portfolio Refresh From Capital Recycling

Frasers Logistics & Industrial Trust - OCBC Investment Research 2018-09-07: A Portfolio Refresh From Capital Recycling FRASERS LOGISTICS & IND TRUST SGX:BUOU

Frasers Logistics & Industrial Trust - A Portfolio Refresh From Capital Recycling

  • Healthy divestment premiums.
  • Redeployed into new assets.
  • Australia’s 2Q18 GDP +3.4% y-o-y.

Capital recycling to create value

  • We see positives from Frasers Logistics & Industrial Trust’s (FLT) recent capital recycling initiatives.
  • On one hand, it completed the divestments of its Lot 102 Coghlan Road property for A$8.75m on 17 Aug and its 80 Hartley Street property for A$90.5m on 20 Aug. The sales consideration came in at an attractive premium of 36.7% and 40.3% above their book values as at 30 Jun 2018 and 31 Mar 2018, respectively. Total net divestment proceeds were A$90.5m.

~ ~ Where SG investors share
  • On the other hand, FLT recycled the capital by purchasing two properties for an aggregate acquisition amount of A$62.6m (total cost of A$66.7m after fees and stamp duties) on 5 Sep. The first property is located in 3 Burilda Close in New South Wales (NSW), while the second asset is 103-131 Wayne Goss Drive in Queensland. Their respective NPI yields are 6.1% and 6.8%. The NSW property has a remaining land tenure of 88.9 years (as at 30 Jun 2018) and WALE of 7.0 years with 100% occupancy. For the Queensland property, it sits on freehold land, has a WALE of 4.2 years and is also fully occupied. The average fixed annual rental increments are 3.1% and 3.0% for the NSW and Queensland properties, respectively, while the average property age is one year.
  • After incorporating the aforementioned transactions in our model, our fair value estimate inches up from S$1.18 to S$1.19.

Australia’s 2Q18 GDP beat the street’s expectations

  • Australia, one of FLT’s core markets, recorded robust GDP growth of 0.9% q-o-q and 3.4% y-o-y in 2Q18, beating the street’s expectations for 0.7% q-o-q and 2.9% y-o-y growth. Meanwhile, household consumption was also firm, rising 0.7% q-o-q as the household savings ratio fell to 1%, the lowest level since Dec 2007. We believe these are healthy indicators for the logistics sector.
  • As wage growth and inflation has remained soft, the Reserve Bank of Australia recently kept its cash rate unchanged at 1.5%. This is aimed at supporting sustainable growth in the economy and to achieve its inflation target over time. We believe this would also provide a favourable funding environment in the near-term for FLT to pursue more acquisitions.
  • Our end-FY18F aggregate leverage projection for FLT is 36.2%, thus leaving it with an estimated debt headroom of A$190m before reaching the 40% mark.

Wong Teck Ching Andy CFA OCBC Investment Research | 2018-09-07
SGX Stock Analyst Report BUY Maintain BUY 1.19 Up 1.180