Can Frasers Logistics & Industrial Trust weather the tumbling Australian dollar?

Its DPU dipped 1.1% YoY in Q1 to $0.017 from $0.018 in 2018.

Beefing up Frasers Logistics & Industrial Trust’s (FLT) portfolio with an attractive pipeline of acquisitions could buffer the the impact a weak Australian dollar had on the firm’s Q1 earnings going into 2019, according to a report by DBS Equity Research.

Australia remains as FLT’s core markets, following its divestments and purchases brought about by the firm’s capital recycling strategy. In August 2018, FLT completed the divestments of two properties for $8.48m (A$8.75m) and $87.75m (A$90.5m), whilst purchasing two properties for an aggregate amount of $60.7m (A$62.6m). The two acquisitions were reported to have net property income (NPI) yields of 6.1% and 6.8%.

Whilst the firm opened the year strongly with its NPI and revenue jumping 46.5% YoY and 40.3% YoY to $48.93m and $59.52m respectively, its distribution per unit (DPU) in SGD terms dipped 1.1% YoY to $0.017 in Q1 from $0.018 during the same period in 2017. The decline was attributed to an enlarged unit base and a lower hedged exchange rate, the firm explained in its financial statement.

Also read: Frasers Logistics & Industrial Trust Q1 NPI jumped 46.5% to $48.93m

“Gearing has increased to 35.6% but remains within the comfortable range with a headroom of over $486.11m (A$500m) that can be tapped on opportunistically,” DBS’ analysts noted, after taking into account the favourable conditions for the logistics and industrial market in Europe FLT cited in its financial statement. “Looking ahead, Frasers Logistics & Industrial Asset Management continues to see inorganic growth opportunities to bulk up its portfolio.”

As of December 2018, FLT’s portfolio remained at near full occupancy at 99.6% with a weighted average lease expiry (WALE) by gross rental income (GR) of 6.71 years, which implies strong income visibility, DBS’s analysts observed in the report.

“From our understanding, FLT still has a $20.81m (A$21.4m) of divestment gains which it can tap on for future distributions to unitholders,” OCBC Investment Research’s (OIR) analyst Andy Wong Teck Ching commented in a separate report. “We believe this will help to buffer the current weakness in the AUD.”

FLT’s European acquisitions in Germany and the Netherlands, along with its Australian buys in FY18, were said to be the primary drivers for the increase in the firm’s NPI and revenue in Q1.

According to FLT, the market share generated by the firm’s light industrial assets in Germany increased significantly during the quarter with industrial assets accounting for one third of transaction volume at $2.32b, whilst lower land prices and the location of the east-west transport corridor in the south of Netherlands is spurring the development of larger distribution centres in the area.

The sentiment was echoed by OIR’s report which highlighted that a robust sponsor pipeline will largely benefit FLT. Ching added that whilst not all the properties will be suitable for FLT, Frasers Logistics & Industrial Asset Management cited that there are a number of stabilised assets which could be potential growth drivers.