Frasers Logistics & Industrial Trust - OCBC Investment 2018-11-08: Gunpowder In The Bag


Frasers Logistics & Industrial Trust - Gunpowder In The Bag

  • FLT’s 4QFY18 DPU +0.6% y-o-y.
  • Distribution from divestment gains.
  • Remains resilient.

4QFY18 results in-line with expectations

  • Frasers Logistics & Industrial Trust’s (FLT) 4QFY18 gross revenue and adjusted NPI (excluding straight-lining adjustments) surged 43.2% and 52.6% y-o-y to A$60.4m and A$49.3m, respectively. This was driven largely by contribution from acquisitions. 
  • DPU in SGD terms grew 0.6% y-o-y to 1.78 S cents, boosted by a A$2m distribution from divestment gains, but partially offset by a weaker currency hedge rate of A$1: S$1.0011 (4QFY17: A$1: S$1.016) and an enlarged unit base.
  • Frasers Logistics & Industrial Trust recorded A$23.4m of divestment gains in 4QFY18, and thus has a balance of A$21.4m which it can tap on for future distributions to unitholders.
  • For FY18, Frasers Logistics & Industrial Trust’s adjusted NPI increased 24.6% to A$155.4m, while DPU of 7.19 S cents (+2.6%) was 0.5% higher than our FY18 forecast of 7.15 S cents.

Portfolio metrics remain defensive

  • Overall portfolio metrics remained largely healthy, with high occupancy of 99.6% and long WALE of 6.87 years. Only 2.5% and 5.9% of its gross rental income is up for renewal in FY19 and FY20, respectively.
  • Although rental reversions in 4QFY18 came in at -5.1%, this was largely due to a 10-year lease agreement for a small space (2,879 sqm, or 0.2% of Frasers Logistics & Industrial Trust’s total Australia GLA) which had negative rental reversions of 19.8%.
  • Rental reversions for FY18 were -3.2%, as built-in annual rental escalations for Frasers Logistics & Industrial Trust’s leases typically outpace market rental growth and thus it is not uncommon for signing rents to revert back to market levels upon renewal.

Healthy valuation uplift

  • Frasers Logistics & Industrial Trust registered a net A$72.4m increase in fair value of investment properties, partly due to a 23 bps compression in cap rates for its Australian portfolio, coupled with a A$16.4m accounting adjustment in relation to its European portfolio acquisition.
  • Its aggregate leverage remains healthy at 34.6%, with 82% of its borrowings fixed/hedged.
  • We fine-tune our assumptions, including
    1. factoring in a lower AUD-SGD exchange rate of A$1: S$0.98 for FY19F and A$1: S$1 for FY20F and beyond,
    2. incorporating some distributions from its divestment gains and
    3. adding in its recent Netherlands acquisition.
  • Rolling forward our valuations, our fair value is unchanged at S$1.19.

Wong Teck Ching Andy CFA OCBC Investment Research | https://www.iocbc.com/ 2018-11-08
SGX Stock Analyst Report BUY MAINTAIN BUY 1.190 SAME 1.190