FRASERS LOGISTICS & IND TRUST (SGX:BUOU)
Frasers Logistics & Industrial Trust - Conditions Ripe For Further Inorganic Growth Opportunities
- Frasers Logistics & Industrial Trust's 4QFY19 DPU -2.8% y-o-y in SGD terms.
- FY19 rental reversions -3.8%.
- Lower cost of debt to support acquisitions.
FLT's 4QFY19 results met our expectations
- FRASERS LOGISTICS & INDUSTRIAL TRUST (SGX:BUOU)’s 4QFY19 results came in within our expectations.
- Gross revenue and NPI rose 1.9% and 0.6% y-o-y to A$61.6m and A$50.5m, respectively. Adjusted NPI was up 1.9% to A$50.2m. See Frasers Logistics & Industrial Trust Announcements.
- DPU in AUD terms grew 2.2% y-o-y to 1.82 A cents, but in SGD terms, this fell 2.8% to 1.73 S cents as a result of a lower hedged exchange rate of A$1.00: S$0.9543. See Frasers Logistics & Industrial Trust Dividend History.
- For the full-year, Frasers Logistics & Industrial Trust’s NPI jumped 23.2% to A$199.4m (adjusted NPI +26.1% to A$195.9m), while DPU in SGD terms declined 2.6% to 7.00 S cents due largely to currency effects (lower hedged exchange rate of A$1.00: S$0.9632, versus A$1.00: S$1.0328 in FY18). This formed 98.8% of our FY19 forecast.
100% committed occupancy; minimal lease expiries ahead
- Operationally, Frasers Logistics & Industrial Trust’s portfolio occupancy was 99.6% (99.4% in Australia and 100% in Europe). Post the quarter-end, management secured a 5- year lease agreement (9,539 sq m) with Amazon for its property at 60 Paltridge Road in Perth. Following this lease, Frasers Logistics & Industrial Trust’s committed occupancy has increased to 100%.
- Further on the leasing front, Frasers Logistics & Industrial Trust renewed/re-let 122,554 sqm of leases in FY19, or ~5.5% of its portfolio GLA. Tenant retention rate was high at 91.2%, but rental reversions came in at -3.8% as the fixed annual rental step-ups in Frasers Logistics & Industrial Trust’s Australian leases typically outpace market rental growth.
- In 4QFY19, management completed 49,268 sqm of leasing at five of its properties with an average rental reversion of -4.3%. The leases at the Australian properties carry fixed rental increases of 3-3.5% p.a.
- Looking ahead, Frasers Logistics & Industrial Trust only has 3.8% and 6.7% of its leases expiring in end-FY20 and end-FY21, respectively, as portfolio WALE remains long at 6.3 years.
- Frasers Logistics & Industrial Trust saw cap rate compression of 29 bps for its Australia portfolio to 6.13%, while that of Europe declined mildly by 4 bps to 5.24%.
Firm outlook, room for further inorganic growth
- In terms of financial position, Frasers Logistics & Industrial Trust has a healthy aggregate leverage of 33.4%. Its weighted average cost of borrowing has come down from 2.5% (end- FY18) to 2.2% due to a bigger proportion of EUR debt and RBA lowering its cash rate to 0.75%.
- Fundamentals of Australia’s core industrial markets in Sydney, Melbourne and Brisbane remain firm, with room for rental growth, in our view. Coupled with stabilising asset yields and Frasers Logistics & Industrial Trust’s healthy debt headroom of ~A$420m (to 40% gearing), we believe conditions are ripe for Frasers Logistics & Industrial Trust to further drive its inorganic growth initiatives.
- After rolling forward our valuations, incorporating a weaker AUD assumption and lower cost of debt, we derive a higher fair value of S$1.28 (previously S$1.22). See Frasers Logistics & Industrial Trust Share Price; Frasers Logistics & Industrial Trust Target Price.
OCBC Research Team
OCBC Investment Research
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https://www.iocbc.com/
2019-11-06
SGX Stock
Analyst Report
1.28
UP
1.200
