Frasers Logistics & Industrial Trust - OCBC Investment 2020-02-10: A Resilient Portfolio In Times Of Uncertainty


Frasers Logistics & Industrial Trust - A Resilient Portfolio In Times Of Uncertainty

1QFY20 results met our expectations

Portfolio fully occupied, but slight negative rental reversions

  • As highlighted during Frasers Logistics & Industrial Trust’s previous 4QFY19 results announcement, it had secured a 5-year lease agreement (9,539 sq m) with Amazon for its property at 60 Paltridge Road in Perth post quarter. Hence physical portfolio occupancy was 100%, as at 31 Dec 2019.
  • There was, however, a slight overall negative rental reversion of 0.9% registered in 1QFY20, mainly due to a renewal in Melbourne (- 12.1% reversion but lease comes with 3.5% annual increment). That said, this Melbourne lease forms only 0.17% of Frasers Logistics & Industrial Trust’s portfolio GLA.

Industrial market trends remain largely firm in Australia and Europe

  • Looking at Australia’s industrial market trends, overall prime grade net face rental growth came in flat q-o-q for Sydney, Melbourne and Brisbane in 4QCY19. However, on a y-o-y basis, rental growth was 2.2%, 1.1% and 2.7%, respectively.
  • Frasers Logistics & Industrial Trust’s Australian properties have also not been affected by the bushfires as they are located away from the affected areas.
  • In Europe, take-up in Germany remained firm although it was lower in some of the main hubs due to a lack of modern space; while there was an uptick in prime rents for warehouse space in The Netherlands in 2019.
  • See Frasers Logistics & Industrial Trust Share Price; Frasers Logistics & Industrial Trust Target Price; Frasers Logistics & Industrial Trust Analyst Reports; Frasers Logistics & Industrial Trust Latest News.
  • After lowering our cost of equity assumption from 7.4% to 7.1% to align with our recent reduction in discount rates for the larger industrial REITs under coverage, we derive a higher fair value estimate of S$1.37 (previously S$1.28). We like Frasers Logistics & Industrial Trust for its portfolio defensiveness. Besides its portfolio being fully occupied, average tenant retention is high at 80-90%, while WALE of 6.23 years is one of the highest within the S-REITs sector.
  • The main bugbear for us remains the weak AUD, but we believe the negative currency impact would be less pronounced in FY20 than in FY19.
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OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2020-02-10
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