• 4QFY18 DPU +0.6% YoY
• Distribution from divestment gains
• Remains resilient

4QFY18 Results In-line With Expectations

Frasers Logistics & Industrial Trust’s (FLT) 4QFY18 gross revenue and adjusted NPI (excluding straight-lining adjustments) surged 43.2% and 52.6% YoY to A$60.4m and A$49.3m, respectively. This was driven largely by contribution from acquisitions. DPU in SGD terms grew 0.6% YoY to 1.78 S cents, boosted by a A$2m distribution from divestment gains, but partially offset by a weaker currency hedge rate of A$1: S$1.0011 (4QFY17: A$1: S$1.016) and an enlarged unit base.

FLT recorded A$23.4m of divestment gains in 4QFY18, and thus has a balance of A$21.4m which it can tap on for future distributions to unitholders. For FY18, FLT’s adjusted NPI increased 24.6% to A$155.4m, while DPU of 7.19 S cents (+2.6%) was 0.5% higher than our FY18 forecast of 7.15 S cents.

Portfolio Metrics Remain Defensive

Overall portfolio metrics remained largely healthy, with high occupancy of 99.6% and long WALE of 6.87 years. Only 2.5% and 5.9% of its gross rental income is up for renewal in FY19 and FY20, respectively. Although rental reversions in 4QFY18 came in at -5.1%, this was largely due to a 10-year lease agreement for a small space (2,879 sqm, or 0.2% of FLT’s total Australia GLA) which had negative rental reversions of 19.8%.

Rental reversions for FY18 were -3.2%, as built-in annual rental escalations for FLT’s leases typically outpace market rental growth and thus it is not uncommon for signing rents to revert back to market levels upon renewal.

Healthy Valuation Uplift

FLT registered a net A$72.4m increase in fair value of investment properties, partly due to a 23 bps compression in cap rates for its Australian portfolio, coupled with a A$16.4m accounting adjustment in relation to its European portfolio acquisition. Its aggregate leverage remains healthy at 34.6%, with 82% of its borrowings fixed/hedged.

We fine-tune our assumptions, including

1. factoring in a lower AUD-SGD exchange rate of A$1: S$0.98 for FY19F and A$1: S$1 for FY20F and beyond,
2. incorporating some distributions from its divestment gains and
3. adding in its recent Netherlands acquisition.

Rolling forward our valuations, our fair value is unchanged at S$1.19.

Source: OCBC Research - 8 Nov 2018