• Maiden results beat Prospectus forecast
• Outlook still robust
• Maintain BUY with slightly higher S$1.10 FV

Maiden DPU of 1.84 S cents since listing

Frasers Logistics & Industrial Trust (FLT) reported its maiden results for the period since its listing on 20 Jun 2016 to 30 Sep 2016. Gross revenue of A$43.1m came in 0.8% higher than its forecast as disclosed in its Prospectus. This was underpinned largely by the leasing of vacant lettable area at its Lot 5 Kangaroo Avenue property from Apr this year and the acquisition of two call option properties on 31 Aug 2016, which was one month ahead of forecast.

NPI of A$35.7m was 1.0% below FLT’s forecast due mainly to one-off repairs and maintenance costs incurred for some of the properties which had their leases extended and those undergoing leasing negotiations. DPU for the period was 1.84 S cents, beating management’s forecast by 2.8% because of lower finance costs and a more favourably hedged exchange rate.

Resilient portfolio metrics

FLT’s occupancy rate stood at 99.2%, as at 30 Sep 2016, versus 98.3% initially during its IPO. The valuation of its portfolio increased A$24.4m, or 1.5% since IPO, to A$1,677.7m, as at 30 Sep 2016, with its portfolio cap rate compressing slightly from 7.00% to 6.96%. Looking ahead, FLT has minimal leasing risks in the near-term, in our view, as only 0.5% of its leases (by gross rental income) are expiring in FY17. The low interest rate environment in Australia, population growth and infrastructure spending by the government are expected to drive tenant demand for industrial space.

Maintain BUY

We incorporate this set of results in our model and fine-tune our assumptions marginally. Our fair value estimate inches up from S$1.09 to S$1.10. Based on its last closing price of S$0.96, FLT offers investors a compelling FY17F distribution yield of 7.0%, backed by its defensive portfolio WALE of 6.6 years and good quality assets. Its gearing ratio is also healthy at 28.2%, as at 30 Sep 2016, which provides it with ample debt headroom to fund its inorganic growth strategies. Management has hedged 84% of its debt and has no near-term refinancing risks. Reiterate our BUY rating on FLT.

Source: OCBC Research - 2 Nov 2016