FRASERS LOGISTICS & IND TRUST (SGX:BUOU)
Frasers Logistics & Industrial Trust - A Resilient Portfolio In Times Of Uncertainty
- Frasers Logistics & Industrial Trust's 1QFY20 DPU -2.2% y-o-y in SGD terms.
- Rental reversions -0.9% but 100% occupancy rate.
- Market trends remain largely firm.
1QFY20 results met our expectations
- Frasers Logistics & Industrial Trust (SGX:BUOU)’s 1QFY20 results came in within our expectations.
- Gross revenue rose 8.2% y-o-y to A$64.4m while NPI was up 10.3% to A$55.4m. Adjusted NPI, which is a better reflection of cash NPI, increased 8.1% y-o-y to A$52.9m. Growth was driven largely by acquisitions and annual rental step-ups in most of Frasers Logistics & Industrial Trust’s leases, but partially offset by divestments. See Frasers Logistics & Industrial Trust Announcements.
- DPU grew 1.1% Y-o-y in AUD terms to 1.83 A cents, but was down 2.2% in SGD terms to S$1.74 S cents as a result of a lower hedged exchange rate of A$1.00: S$0.9502, versus A$1.00: S$0.9820 in 1QFY19. This formed 24.5% of our FY20 forecast.
- See Frasers Logistics & Industrial Trust Dividend History.
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.
- Upgrade to BUY.
OCBC Research Team
OCBC Investment Research
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https://www.iocbc.com/
2020-02-10
SGX Stock
Analyst Report
1.37
UP
1.280
