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7 Takeaways From Frasers Logistics & Industrial Trust’s Half-Year Earnings

Last Friday, Frasers Logistics & Industrial Trust (FLT) (SGX: BUOU) released its second-quarter and first-half earnings update for its financial year ending 30 September 2019 (Q2 FY 2019). The period reported on relates to 1 October 2018 till 31 March 2019. As a recap, FLT is a Singapore-listed real estate investment trust (REIT) that owns properties in Australia, Germany, and the Netherlands. Its sponsor is Frasers Property Ltd (SGX: TQ5).

Here are seven highlights investors should be aware of from FLT’s latest earnings report.

1. For the quarter under review (i.e. Q2 FY 2019), FLT reported higher revenue of A$59.7 million, up 36.9% year-on-year from A$43.6 million. This was due to new contributions from their European and Australian acquisitions in FY 2018, as well as the Dutch acquisition in FY 2019. Adjusted net property income increased by 43.3% year-on-year to A$47.9 million.

2. Distributable income to unitholders increased by 42.7% year-on-year to A$36.9 million, due to contributions from the various acquisitions, offset by higher finance costs (from the additional debt taken up to acquire the properties) as well as higher income taxes. Currency effects came into play again, causing the first-half 2019 (H1 FY 2019) distribution per unit (DPU) to dip by 1.9% from 3.61 Singapore cents to 3.54 Singapore cents. DPU denominated in Aussie dollars actually rose by 6.8% year-on-year.

3. The REIT’s annualised DPU (based on H1 FY 2019) came out to 7.08 Singapore cents. Based on the REIT’s closing price of S$1.18 as of 26 April 2019, the annualised forward distribution yield stands at 6.0%.

4. Aggregate leverage for the REIT stood at 35.1%, leaving debt headroom of A$563 million for the REIT before it hits the regulatory limit of 45%. Weighted average cost of borrowings had fallen from 2.9% to 2.4% (excluding upfront debt-related expenses for the current quarter) and 79% of the debt was on fixed rates, mitigating the impact of slowly-rising interest rates.

5. The REIT’s number of properties stands at 82 in total, with 60 in Australia and 22 in Europe valued at around A$3 billion. The total gross lettable area is 1.9 billion square metres and the weighted average lease expiry (WALE) by gross rental income (GRI) was 6.61 years. The total occupancy rate by GRI remains very high at 99.6%.

6. In terms of portfolio updates, the REIT completed two leasing deals during the quarter involving a property at 468 Boundary Road in Victoria, Australia. The property underwent a 10-year lease extension commencing August 2021, with annual fixed rental increases of 2.5%. Asset enhancement initiatives (AEI) are also planned for this property, including an upgrade of existing facilities and an office refurbishment. The expected return on the AEI is 8%.

7. Mr. Robert Wallace, CEO of the REIT manager, was sanguine on the REIT’s outlook. This is what he said.

“The second quarter was again an exciting period for FLT. We were included in the FTSE EPRA/NAREIT Developed Index in March, marking an important milestone which will strengthen FLT’s position in the capital markets. We completed two leasing deals that included a 10-year lease extension and AEI for the CHEP Property, as well as the divestment of a non-core property in Victoria, Australia. We are also pleased to declare a distribution of 3.54 Singapore cents to unitholders.

Looking forward, we will continue to manage and explore opportunities for growth and maximise our portfolio’s potential. The prime logistics sector across our key markets of Germany, Netherlands as well as the eastern seaboard of Australia remain well-supported by investments in infrastructure and an expanding e-commerce market. We will also continue to keep a watchful eye on developments in the macro environment which may invariably impact our business.”

Weaker currency issues have impacted the Singapore-dollar distributions, but FLT’s portfolio continues to do well with good demand for industrial property in both Australia and Europe. The long WALE provides predictable rental income for the REIT and there are minimal lease expiries for FY 2019 (<2%).

The gearing level of 35.1% still allows the REIT to gear up for potential acquisitions if need be, while the forward dividend yield of 6% remains attractive for investors who wish to derive income from overseas industrial properties.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Royston Yang owns shares in Frasers Logistics And Industrial Trust.