SINGAPORE (Sept 11): OCBC Investment Research is maintaining its “buy” call on Frasers Logistics & Industrial Trust (FLT) with a higher fair value of $1.19 compared to $1.18 previously, after incorporating the trust’s recent capital recycling transactions into its valuation model.
In a report last Friday, analyst Andy Wong notes that FLT’s recently-completed property divestments at Coghlan Road and Hartley Street in Australia came in at attractive premiums of 36.7% and 40.3% above book values as at end-June and end-March, respectively.
He also highlights that FLT recycled the capital by purchasing two properties at Burilda Close in New South Wales and Wayne Goss Drive in Queensland, each with a respective net property income (NPI) yield of 6.1% and 6.8%, for an aggregate of A$62.6 million.
“The NSW property has a remaining land tenure of 88.9 years (as at 30 Jun 2018) and WALE of 7.0 years with 100% occupancy. For the Queensland property, it sits on freehold land, has a WALE of 4.2 years and is also fully occupied. The average fixed annual rental increments are 3.1% and 3.0% for the NSW and Queensland properties, respectively, while the average property age is one year,” observes Wong.
Going forward, the analyst estimates the trust has debt headroom of about A$190 million before reaching the 40% mark, considering his 36.2% end-FY18F aggregate leverage projection for FLT.
In his view, Australia’s robust 2Q GDP growth and firm household consumption are healthy indicators for the logistics sector.
“As wage growth and inflation has remained soft, the Reserve Bank of Australia recently kept its cash rate unchanged at 1.5%. This is aimed at supporting sustainable growth in the economy and to achieve its inflation target over time. We believe this would also provide a favourable funding environment in the near-term for FLT to pursue more acquisitions,” says Wong.
Units in FLT were 1 cent higher at $1.07, or 7.1 times FY18F DPU, before the midday trading break.
