7 Things to Note About Frasers Logistics & Industrial Trust Latest Results

Frasers Logistics & Industrial Trust (FLIT) is a Singapore-listed REIT that holds logistics and industrial assets in Australia, and more recently, Europe, after a blockbuster acquisition deal of 21 properties in Germany and Netherlands. It has a portfolio of 82 properties worth approximately A$2.8 billion.

It conducted a private placement and rights issue in Apr 2018 to fund its expansion drive into Europe.

With its 3Q FY18 results just announced, we take a closer at its earnings to see if it’s performing up to investors’ expectation.

Revenue, Net Property Income and Distributable Income

Source: Frasers Logistics & Industrial Trust 2Q Results Presentation

FLIT’s gross revenue grew 22.6% to $49.3 million year-on-year (yoy), boosted by its acquisition of Germany and Netherlands properties.

Net Property Income (NPI) increased 27.4% to $39.2 million yoy. Do note that the European properties’ contribution to NPI only spans the period between 26 may to 30 Jun 2018.

Distributable Income increased by a similar tune of 22.4%, to $30.6 million.

However, Distribution per Unit (DPU) increased by a much smaller margin of 2.9% to 1.80 cents in 3Q. This is attributed to a 41% increase in the number of units in issue at 30 June 2018 compared to 30 June 2017.

Investment Properties

Post its European acquisition, the Australia and Europe portfolio accounted for 67% and 33% of the total assets respectively. Essentially, the acquisition deal enlarged the total asset base from A$1.91 billion to A$2.84 billion. This is a very significant expansion at one go.

Source: Frasers Logistics & Industrial Trust 2Q Results Presentation

Portfolio and Tenants Overview

Source: Frasers Logistics & Industrial Trust 2Q Results Presentation

Overall, FLIT’s portfolio has an occupancy rate of 99.3%. Most of the properties are relatively new with an average age of 7.7 years.

A positive point lies in the Fixed Annual Rental Increment embedded in its Australia assets. This would ensure rentals are able to keep up with inflation and not negatively impact FLIT’s revenue.

Its Weighted Average Lease Expiry (WALE) stood at 7 years as at 30 Jun 18. For the rest of FY18 and FY19, only 3.5% of Gross Rental Income (GRI) is up for renewal. This provides a high degree of stability to FLIT’s rental revenue.

FLIT has a reasonably well-diversified tenant base. Its top ten tenants, comprises global well-known brands such as BMW, Schenker, and Ceva Logistics, and major/listed corporations in their home market. Collectively, they constitute about 34.6% of total GRI.

Capital Management and Debt Maturity

As at 30 Jun 18, FLIT’s aggregate leverage is 36.3%. This is not excessively high and well below the regulatory requirement of 45%.

81% of borrowings are at fixed interest rates which mitigate the volatility of borrowing cost. At current leverage, there is debt headroom of A$469 million to reach the regulatory limit.

Average weighted debt maturity is 3.2 years. Do not that FLIT is at a net current liability position as a A$237 million term loans repayable within the next 12 months are classified to current borrowings. The manager is in discussion with banks to refinance these loans.

Market Outlook

Management gave some comments on the industrial leasing market.

For Australia, it said “third-party logistics and consumer sectors have been leading demand nationally with the rise of online retailing becoming more significant. E-commerce growth potential and increased government infrastructure continue to have positive spillover effects on demand for industrial space.”

For Europe, it said

“The German industrial and logistics market remains underpinned by increasing demand, including growth in e-commerce and a favourable economic environment. New industrial supply remains limited, with prime rents stable in most markets

Business confidence in the Netherlands has been boosted by improving domestic demand and industrial output. Industrial and logistics investment continued to increase sharply, representing 20% of total commercial real estate investment over the past 12 months.”

Conclusion

FLIT has shown a good report card for its latest quarter, with healthy revenue, NPI and Distributable Income growth. While the private placement and rights issue for European acquisition expanded unit base considerably, Distribution was not compromised judging by the growth in DPU this quarter. Leverage was not over-extended as well.

Should FLIT managed to maintain in growth momentum via organic rental growth, prudent acquisition without affecting the DPU, it could be a good REIT for long-term holding.

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