Frasers Logistics & Industrial Trust steps up Australian buys

It sold 2 properties and bought 2 new others as part of capital recycling.

Frasers Logistics & Industrial Trust’s (FLT) is on a roll in its core market Australia thanks to its new divestments and purchases brought about by its “capital recycling” initiative is on a roll, OCBC Investment Research (OIR) said.

In August, FLT was able to complete the divestments of Lot 102 Coghlan Road for A$8.75m and 80 Hartley Street for A$90.5m as part of its “capital recycling” initiatives.

The sales consideration came in at premiums of 36.7% and 40.3% above their book values as at 30 June 2018 and 31 March 2018, respectively. Total net divestment proceeds were A$90.5m, OIR noted.

The company was able to recycle capital by buying two properties in 3 Burilda Close, New South Wales (NSW) and 103-131 Wayne Goss Drive, Queensland for an aggregate amount of A$62.6m (total cost of A$66.7m after fees and stamp duties) on 5 September.

Their respective NPI yields are 6.1% and 6.8%. The NSW property has a remaining land tenure of 88.9 years and WALE of 7.0 years with 100% occupancy. For the Queensland property, it sits on freehold land, has a WALE of 4.2 years and is also fully occupied.

The average fixed annual rental increments are 3.1% and 3.0% for the NSW and Queensland properties, respectively, whilst the average property age is one year.

According to OIR, FLT is also set to benefit from Australia’s improved economy, as GDP beat street expectations and grew 3.4% YoY in Q2. Household consumption was also firm as the household savings ratio fell to 1%, the lowest level since December 2007.

“We believe these are healthy indicators for the logistics sector,” said OIR analyst Andy Wong Teck Ching.

As wage growth and inflation has remained soft, the Reserve Bank of Australia recently kept its cash rate unchanged at 1.5%. “This is aimed at supporting sustainable growth in the economy and to achieve its inflation target over time,” Wong said.

The analyst noted that this would also provide a favourable funding environment in the near-term for FLT to pursue more acquisitions. “Our end-FY2018F aggregate leverage projection for FLT is 36.2%, thus leaving it with an estimated debt headroom of A$190m before reaching the 40% mark,” he concluded.