• 2QFY19 DPU -2.8% YoY in SGD terms
• Rental reversions -5.3%
• Share price has performed well

2QFY19 Results In-line With Expectations

Frasers Logistics & Industrial Trust’s (FLT) 2QFY19 results met our expectations. Gross revenue and adjusted NPI (excluding straightlining adjustments) surged 36.9% and 43.3% YoY to A$59.7m and A$47.9m, respectively, due largely to inorganic growth, but partially offset by divestments. DPU in AUD terms grew 7.1% YoY to 1.82 A cents. However, in SGD terms, DPU fell 2.8% to 1.76 S cents as a result of a lower hedged exchange rate of A$1.00: S$0.9666, versus A$1.00: S$1.0647 in 2QFY18.

On a 1HFY19 basis, FLT’s adjusted NPI jumped 44.9% to A$96.8m, while DPU in SGD terms declined 1.9% to 3.54 S cents due to similar reasons highlighted above. The latter formed 49.5% of our FY19 forecast. In AUD terms, 1HFY19 DPU rose 6.8% to 3.63 A cents.

AEI Opportunity to Mitigate Negative Rental Reversion From Renewal

Operationally, FLT saw negative rental reversions of 5.3% in 2QFY19. However, this was for 24.9k sqm of space, which represents only 1.3% of FLT’s portfolio GLA. The bulk of the negative rental reversions came from its 468 Boundary Road property in Victoria (-4.9%), but this entails a 10-year lease extension commencing Aug 2021 with an annual rental step-up of 2.5%.

Furthermore, there was also a corresponding AEI opportunity from this lease renewal, as FLT managed to acquire an adjacent freehold site (12.3k sqm) from its sponsor for A$0.8m, which allows an expansion to the existing hardstand area and an upgrade of the existing facilities. The expected ROI of this AEI is ~8%.

FLT’s portfolio remains largely defensive, with a portfolio WALE of 6.6 years and minimal lease expiries in the near-term (1.3% and 5.9% of its gross rental income expiring in 2HFY19 and FY20, respectively).

Had a Good Run

FLT’s share price has appreciated 14.6% YTD (as at 29 Apr close). Looking ahead, we expect continued impact from the AUD weakness at least in the near-term, and thus lower our AUDSGD assumption by 1%-2%. However, as we also bring down our risk free rate assumption from 2.7% to 2.3%, our fair value inches up from S$1.19 to S$1.20. As FLT’s share price has performed well, having appreciated 14.6% YTD, we downgrade our recommendation to HOLD.

Source: OCBC Research - 30 Apr 2019