SINGAPORE (Feb 7): DBS Vickers Securities is reiterating its “buy” recommendation on Frasers Industrial & Logistics Trust (FLT) with a price target of $1.10, on the belief that the REIT offers steady returns with the “firepower” to make further acquisitions.
FLT on Monday declared a distribution per unit (DPU) of 1.74 cents for the 1Q ended Dec 2016, exceeding its initial public offering (IPO) forecasts by 6.1% due to interest savings from a lower actual weighted interest rate compared to what was forecasted.
(See also: Frasers Logistics & Industrial Trust declares forecast-beating 1Q DPU of 1.74 cents)
“With an under-geared balance sheet, FLT has executed from a myriad of opportunities available from its sponsor,” comments lead analyst Mervyn Song in a Tuesday report.
Song is referring to Frasers Centrepoint Limited (FCL), which has granted FLT a right of first refusal (ROFR) over any of its completed income-producing industrial properties the sponsor intends to divest. This presently comprises 11 properties which can be acquired in the medium-term, observes the analyst.
As such, DBS is convinced the REIT remains attractive with a prospective yield of close to 7%, and has tweaked estimates higher after reducing interest-cost assumptions.
Noting steady portfolio occupancy at 99%, Song projects that FLT’s forward outlook remains stable given limited expiries over the coming year in FY17, with only 0.6% of leases up for renewal in the next 12 months. He adds that FLT’s portfolio weighted average lease expiry (WALE) remains long at 6.9 years, which implies strong earnings visibility.
Nevertheless, Song warns of some currency risk as the REIT is exposed to currency fluctuations, given that its manager pays its distributions in SGD although it earns in AUD.
The manager attempts to reduce foreign fluctuations by hedging distributions regularly, and has hedged in distributions till Sept 2017 at an estimated exchange rate of 1:1.
“Spot rate now is one A$ for $1.07, implying 7% upside when these hedges are rolled over”, says Song.
As at 9.51am, units of FLT are trading 0.5% higher at 96.5 cents.
