Frasers Logistics & Industrial Trust’s (FLT) 2QFY18 results came in within our expectations.

Gross revenue rose 6.4% YoY to A$43.6m and NPI grew 3.3% to A$35.7m, while adjusted NPI (excluding straight lining adjustments for rental income and after adding back straight lining adjustments for ground leases) jumped 8.1% to A$33.4m.

This was driven largely by the acquisitions of four completed properties in FY17 and contribution from the practical completion of two development assets in Oct and Nov last year.

DPU in AUD terms declined 2.9% YoY to 1.70 A cents as only 67.5% of management fees were taken in units in 2QFY18, versus 100% in 2QFY17. If 100% of the management fees were taken in units instead, 2QFY18 DPU would have grown 1.1% to 1.77 A cents.

In SGD terms, due to a currency hedge rate of A$1: S$1.0647 which FLT entered into (2QFY17: A$1: S$1.0014), DPU grew 3.4% YoY to 1.81 S cents.

For 1HFY18, FLT’s gross revenue and DPU improved 6.7% and 3.4% to A$86.0m and 3.61 S cents, forming 49.1% and 50.3% of our FY18 forecasts, respectively. FLT’s balance sheet remains strong, with a gearing ratio of 30.5%, as at 31 Mar 2018. There were three leases renewed/signed in 2QFY18.

Although rental reversions were negative at 7.3%, the three leases carry annual rent increments of 3.15%-3.25%, which would provide an uplift to FLT’s income going forward. We will provide more details after the analyst conference call.

Maintain BUY on FLT but we will be reviewing our S$1.25 fair value estimate.

Source: OCBC Research - 8 May 2018