SINGAPORE (May 8): UOB is maintaining its “buy” call on Frasers Logistics & Industrial Trust (FLT) with an unchanged target price of $1.11.
FLT’s most recent results were in line with analyst Derek Chang’s expectations, with core 1H17 DPU making up 52.2% of his FY17 DPU estimates.
2Q17 DPU of 1.75 cents exceeded FLT’s expectations by 6.7% as well.
Chang says FLT displayed a proactive management of a well spread-out lease expiry profile, with expiring leases for 2017 and 2018 remaining meagre at 0.2% and 3.6% of overall gross rental income respectively.
2Q17 overall occupancy remained stable at 99.3% compared to 99.3% at 1Q17 while tenant retention remained high at 92.4%.
FLT faced negative rental revisions of 4.9% due to drag from a single lease at Australian Geographic. However, the surrender fee paid by the previous sole tenant at the property upon early termination of its lease is likely to offset the impact of the negative rental reversion, according to Chang.
Chang believes a potential pickup could occur in FY18 due to a depreciating S$ against the A$. Management has indicated that it intends to begin hedging 1H18 DPU this month on a staggered basis.
“Assuming spot rates hold at around S$1.0386/A$1, FLT will likely hedge 1H18 DPU at about S$1.0286/A$1,” says Chang, “2QFY17 DPU was hedged at S$1.0014/A$1 (1QFY17 DPU: S$1.00/A$1), implying minimal forex gains for FY17 distribution.”
Units of FLT are currently trading at $1.02.
