SINGAPORE (Nov 7): Analysts continue to remain upbeat on Frasers Logistics and Industrial Trust (FLT) after a solid year which saw the REIT book increases across several financial metrics. 

The REIT reported a distribution per unit (DPU) figure to 7.27 Australian cents for FY19 ended September, up 4.8% from 6.94 Australian cents in the previous year. 

In particular, revenue for 4Q19 saw an increase of 1.9% to A$61.6 million ($57.7 million) from A$60.4 million in 4Q18, while net property income (NPI) for the quarter inched up 1.9% to A$50.2 million from A$49.3 million the preceding year.

In its earnings call released on Nov 6, FLT noted that the increase in NPI was attributable mainly to the various acquisitions in FY18 and FY19. “Looking ahead, the REIT Manager will continue to grow FLT’s portfolio with a focus on generating sustainable long-term value for unitholders,” it said.

Analysts are quick to point out that acquisitions are likely to remain a key determinant for FLT’s success. 

In a Thursday report, DBS analyst Derek Tan believes that the REIT remains on the hunt for acquisitions to further diversify its asset and earnings bases. 

“Given its large scale in its core markets, we believe that if the Manager is ready to embark on development properties to further drive higher returns in markets where strong capital flows have resulted in limited opportunities to buy income-producing assets at reasonably priced yields,” says Tan. 

Tan adds that the REIT is likely to continue tapping on its sponsor for opportunities in addition to potential third-party ones. He also adds that the management could utilise the A$20 million worth of gains from divestments of three properties in Australia at premiums to book value, for acquisitions or future distributions. 

CGS-CIMB analyst Lock Mun Yee notes that FLT had beat the brokerage’s DPU forecast by 9%, on the back of its new acquisitions. 

“FLT completed 10 out of 12 acquisitions previously announced and is looking to complete the other two acquisitions of German properties in early-FY9/20,” says Lock in a Thursday report. 

Apart from acquisitions, Lock also believes that FLT’s occupancy being boosted to 100% on the back of a new five-year lease from Amazon could well work in its favour, especially amid challenging times. 

“Demand-supply dynamics remain supportive,” says Lock, adding that vacancy levels are at 5-year lows across key cities of Sydney, Melbourne and Brisbane. “Strong investor demand for industrial space has also led to yield compression, with FLT recording a A$101 million revaluation gain.”

Despite minor stumbling blocks across some cities, DBS’ Tan emphasises that FLT is continuing to look for opportunities in Australia and Europe. 

“Currently, yields in Europe seem more compelling, especially in the Netherlands where the market is robust and new supply remains limited,” says Tan. 

As a result, both brokerages are remaining optimistic on FLT and its ability to continue delivering favourable results.

Tan also likes FLT for its “resilience in income, steady organic growth profile, and 2.0% compounded annual growth rate (CAGR) over the next two years” that are likely to be driven by annual rental lease escalations and the assumed boost from $250 million worth of acquisitions from FY21. 

Similarly, Lock attests that FLT’s key investment merits include the ability to tap on its sponsor’s pipeline of 39 properties in Europe and Australia and the supportive demand-supply dynamics in both markets, as well as the low earnings risk as a result of its long weighted average lease expiry (WALE) and low upcoming expiries.  

Both brokerages are maintaining their “buy” calls on FLT, with DBS having an unchanged target price of $1.40 and CGS-CIMB increasing its target price to $1.31 from the previous $1.27. 

As at 3.18pm, units in Frasers Logistics and Industrial Trust are trading one cent higher, or 0.8% up, at $1.27. This translates into a price-to-earnings (PE) ratio of 20.9 times and a distribution yield of 5.5% for FY20F according to DBS valuations.