SINGAPORE (May 2): CGS-CIMB Research and OCBC Investment Research have downgraded Frasers Logistics & Industrial Trust (FLT) to “hold” from “buy” with price targets of $1.21 and $1.20 respectively.

In 2Q19, FLT’s manager declared a DPU to 1.76 cents, 2.8% lower than a year ago due to the softening of AUD and EUR against SGD.

Revenue was 36.9% higher y-o-y at A$59.7 million, while adjusted NPI was up 43.3% to A$47.9 million from A$33.4 million in the previous year.

As at end-March 2019, total portfolio occupancy was 99.6% with a weighted average lease expiry (WALE) by gross rental income (GRI) of 6.61 years, and minimal lease expiries by GRI of 1.3% for the year ended Sept 2019.

See: Frasers Logistics Trust's 2Q DPU falls 2.8% to 1.76 cents on forex changes

Even as the REIT’s latest 2Q19 results came in line with the forecast of both research houses, they expect the REIT to be impacted by AUD and EUR weakness in the near-term.

FLT reported –5.3% average rental reversions for 2Q19, a slight increase from –7.2% in 1Q19,  attributed to properties representing 1.3% of total portfolio gross lettable area.

A significant portion was due to the lease extension of its property located at 468 Boundary Road in Victoria which had a –4.9% reversion. This is despite FLT currently undertaking the asset enhancement (AEI) to expand the existing hardstand area and upgrade the existing facilities.

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$0.8 million, which allows an expansion to the existing hardstand area and an upgrade of the existing facilities.

In an Apr 30 market pulse report, OCBC analyst Andy Wong Teck Ching says, “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.”

Moreover, FLT in March announced its inclusion in the FTSE EPRA/NAREIT Global Real Estate Index Series (Global Developed Index). Since the announcement, FLT has gained 6.3% while average trading volume has risen 40.5% compared to pre-announcement volumes in 2019.

In an Apr 29 report, CGS-CIMB lead analyst Lock Mun Yee says, “While this could help to raise trading liquidity and visibility to investors, we think that the impact had been fully priced in.”

YTD, units in FLT have increased about 15.5% to trade at $1.19 as at 11am on Thursday. The stock is trading at 1.32 times FY19 book with a dividend yield of 5.73%.