Frasers Logistics & Industrial Trust - DBS Research 2019-01-28: Weak AUD Masks Strong Underlying Operational Performance


Frasers Logistics & Industrial Trust - Weak AUD Masks Strong Underlying Operational Performance

  • Frasers Logistics & Industrial Trust's 1Q19 DPU of 1.78 Scts a dip because of weak AUD; underlying DPU rose 6.5% y-o-y
  • Gearing remains at optimal level, with headroom of more than A$500m for more acquisitions
  • Long WALE offers good visibility.

What’s New

DPU hindered by the weak AUD.

  • FRASERS LOGISTICS & INDUSTRIAL TRUST (SGX:BUOU) reported a 40.3% and 46.5% rise in revenues and net property income (NPI) to A$59.5m and A$50.3m respectively. Adjusted NPI (reducing impact from straight-lining) rose by 44.5% to A$48.9m. This was mainly on the back of past acquisitions completed in FY18 in Europe, Australia, offsetting its divestment. This also includes a A$1.2m in early surrender fee for Lot 63-79 South Park Drive, Dandenong South, Victoria.
  • Frasers Logistics & Industrial Trust also recorded a 57.5% rise in interest expenses incurred to part fund acquisitions, resulting in a 41.9% rise in distributable income to S$36.7m. This translates into a DPU of 1.81 Australian cents, +6.5% y-o-y. However, due to a lower AUD-SGD exchange rate, DPU in S$ terms dipped by 1.1% to 1.78 Scts.
  • We also note that in the quarter, the manager took a slightly higher percentage in units (83% in 1Q19 vs 78% in 1Q18).

Gearing at optimal level; headroom for growth remains.

  • Gearing has increased to 35.6% but remains within the comfortable range with a headroom of > A$500m that can be tapped on opportunistically. Interest rate volatility is also mitigated with 79% of its debt fixed while average borrowing costs remained stable at 2.4% (vs 2.5% in 4Q18).
  • The debt maturity profile remained long at 2.6 years. (vs 2.9 years as of end-4Q18).
  • The manager continues to maintain a 6-monthly hedge for its AUD to mitigate the impact of currency on distributions.

Stable reversions and long WALE.

  • Frasers Logistics & Industrial Trust signed and renewed two leases in 1QFY19, at an average rental reversion of -7.2%, with the dip largely driven by a -9.4% negative rental reversion at 170 Atlantic Drive, Keysborough Melboune with a further 3.67 year extension (3.0% annual escalations) and flattish reversions at 2-46 Douglas Street, Port Melbourne Road, Melbourne Airport where Siemens extended the lease for a further five years.
  • We understand that the divergent reversions were due to a tighter supply situation for Port Melbourne while the Keysborough property negative reversions were constrained partially from asset-specific reason.
  • As of December 2018, Frasers Logistics & Industrial Trust still had a long WALE of 6.71 years (6.48 years in Australia and 7.36 years in Europe), implying strong income visibility. The completion of Mandeveld 12, Netherlands (EUR25.4m,5.4% yield) on 31 October 2018 will start to contribute fully from 2QFY19 onwards, providing a steady uplift in revenues.

Acquisitions; an attractive pipeline for the Sponsor.

  • Looking ahead, the manager continues to see inorganic growth opportunities to bulk up its portfolio. It remains keen to tap on the sponsor’s pipeline of properties in Australia and Europe is looking to acquire selectively when the situation stabilises in the medium term.

Derek TAN DBS Group Research | Mervin SONG CFA DBS Research | Carmen TAY DBS Research | https://www.dbsvickers.com/ 2019-01-28
SGX Stock Analyst Report BUY MAINTAIN BUY 1.200 SAME 1.200