• 2QFY17 DPU above prospectus forecast
• Minimal near-term lease expiries
• Healthy gearing ratio 28.9%

2QFY17 Results Slightly Exceeded Our Expectations

Frasers Logistics & Industrial Trust (FLT) reported its 2QFY17 results which beat its IPO prospectus forecast and also slightly exceeded our expectations. Gross revenue and NPI came in at A$40.9m and A$34.6m, or 1.6% and 2.4% above FLT’s forecast, respectively. DPU of 1.75 S cents exceeded FLT’s IPO prospectus projection by 6.7% due largely to lower-than-expected finance costs. For 1HFY17, FLT’s gross revenue and DPU of A$80.6m and 3.49 S cents constituted 49.6% and 51.9% of our forecasts, respectively.

Largely Resilient Portfolio

Operationally, FLT’s portfolio occupancy remained high at 99.3% (unchanged QoQ), while WALE is healthy at 6.7 years. There were two major new leases/renewals signed recently. Negative rental reversions came in at 4.85% for 2QFY17 and 1.68% for 1HFY17. However, this is understandable as FLT’s average fixed rental escalation of ~3.2% per annum is typically higher than market rental growth and hence the rental rates are usually reverted back to market rates upon the signing of renewal and new leases.

In addition, for the case of the lease surrendered by Australian Geographic Retail Pty Ltd, the compensation received helped to negate the negative rental reversion of the new lease signed.

Looking ahead, we expect FLT’s portfolio to remain resilient, as it only has 0.2% and 3.6% of lease expiries (by gross rental income) for the remainder of FY17 and FY18, respectively. In terms of financial position, FLT has a low gearing ratio 28.9%, as at 31 Mar 2017.

Maintain BUY

From our understanding, FLT has yet to hedge its estimated distributable income for FY18 and will look to do so this month by taking a staggered approach. On hindsight, perhaps FLT should have entered into its currency hedges for FY18 earlier, as the AUD has depreciated ~5% against the SGD since its recent peak in mid-Feb.

Notwithstanding this, we believe our AUD-SGD assumption for FY18 is conservative at A$1.00 : S$1.02. Taking into account this set of results, we raise our FY17 and FY18 DPU forecasts by 2.8% and 3.3%, respectively, as we lower our finance cost assumptions.

Correspondingly, our fair value estimate is bumped up from S$1.08 to S$1.12. Maintain BUY on FLT.

Source: OCBC Research - 8 May 2017