Frasers Logistics & Industrial Trust - OCBC Investment 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

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.

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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, 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 | https://www.iocbc.com/ 2018-09-07

SGX Stock Analyst Report BUY Maintain BUY 1.19 Up 1.180