SINGAPORE (Jan 28): OCBC Investment Research is maintaining Frasers Logistics & Industrial Trust (FLT) at “buy”.
FLT currently has a ROFR (right of first refusal) for over 44 properties from its sponsor, of which 17 are in Australia and the rest is in Europe.
While not all will be suitable for FLT, management says there are a number of stabilised assets which it can potentially look at.
“We maintain our forecasts and $1.19 fair value estimate,” says analyst Andy Wong Teck Ching in a Monday report.
Gross revenue and adjusted NPI (net property income) jumped 40.3% and 46.5% y-o-y to A$59.5 million and A$48.9 million, respectively.
See: Frasers Logistics Trust reports 1.1% lower 1Q DPU of 1.78 cents on enlarged unit base and lower hedged exchange rate
Growth was driven largely by contribution from acquisitions and the early surrender fee of A$1.2 million received from one of its properties.
DPU in SGD terms slipped 1.1% y-o-y to 1.78 cents, forming 24.9% of FY19 forecast. The decline was largely attributed to an enlarged unit base and a lower hedged exchange rate of A$1.00: $0.9820, versus A$1.00: $1.0583 in 1Q18.
In AUD terms, DPU rose 6.5% y-o-y to 1.81 A cents. According to management, it has hedged its 1Q19 distributions and a portion of its estimated distributable income for 2Q19.
From OCBC’s understanding, FLT still has A$21.4 million 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,” says Wong.
FLT’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%,” says Wong, “Again, we wish to highlight that FLT’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 FLT 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, according to data from JLL.
As at 12.08pm, units in FLT are down 6.1% to $1.07 from $1.14 a year ago.
