Frasers Logistics & Industrial Trust - OCBC Investment 2019-01-28: Slight Dip In DPU But Not A Surprise


Frasers Logistics & Industrial Trust - Slight Dip In DPU But Not A Surprise

1QFY19 results in-line with expectations

  • FRASERS LOGISTICS & INDUSTRIAL TRUST (SGX:BUOU)'s 1QFY19 results met our expectations. Gross revenue and adjusted NPI (excluding straight-lining adjustments) jumped 40.3% and 46.5% y-o-y to A$59.5m and A$48.9m, respectively.
  • Growth was driven largely by contribution from acquisitions and the early surrender fee of A$1.2m received from one of its properties.
  • DPU in SGD terms slipped 1.1% y-o-y to 1.78 S cents, forming 24.9% of our FY19 forecast. The decline was largely attributed to an enlarged unit base and a lower hedged exchange rate of A$1.00: S$0.9820, versus A$1.00: S$1.0583 in 1QFY18. In AUD terms, DPU rose 6.5% y-o-y to 1.81 A cents.
  • According to management, it has hedged its 1QFY19 distributions and a portion of its estimated distributable income for 2QFY19. From our understanding, Frasers Logistics & Industrial Trust still has A$21.4m of divestment gains which it can tap on for future distributions to unitholders. We believe this will help to buffer the current weakness in the AUD.

Negative reversions a function of high annual rental escalations

  • Frasers Logistics & Industrial Trust’s portfolio remains defensive, with a long WALE of 6.71 years and near-full occupancy of 99.6%. Two leases aggregating 21,140 sqm were renewed in Victoria, Australia, in 1QFY19, with negative rental reversions of 7.2%. Both leases carry annual fixed rental increases of 3.0%-3.5%.
  • Again, we wish to highlight that Frasers Logistics & Industrial Trust’s negative rental reversions are largely a function of its annual rental escalations outpacing the market rental growth, and thus signing rents are typically reverted back to market levels upon the lease renewal.
  • For the core Australian markets which Frasers Logistics & Industrial Trust operates in, Sydney’s industrial prime grade net face rents saw a 1.5% q-o-q increase in 4QCY18, while Melbourne and Brisbane were flat (but +1.1% and +0.9% y-o-y, respectively), according to data JLL.

Sponsor pipeline remains robust

  • Frasers Logistics & Industrial Trust currently has a ROFR for over 44 properties from its sponsor, of which 17 are in Australia and the balance is in Europe. While not all will be suitable for Frasers Logistics & Industrial Trust, management said that there are a number of stabilised assets which it can potentially look at.
  • We maintain our forecasts and S$1.19 fair value estimate.

Andy Wong Teck Ching OCBC Investment Research | 2019-01-28
SGX Stock Analyst Report BUY MAINTAIN BUY 1.190 SAME 1.190