Frasers Logistics & Commercial Trust - CGS-CIMB Research 2020-07-13: On A Stronger Growth Trajectory


Frasers Logistics & Commercial Trust - On A Stronger Growth Trajectory

  • Frasers Logistics & Commercial Trust offers stronger acquisition growth prospects post-merger, in our view.
  • Stable and resilient portfolio due to long WALE and inbuilt rental escalations.
  • We reiterate our ADD rating with a higher DDM-based Target Price of S$1.43.

Reiterate ADD on Frasers Logistics & Commercial Trust with a higher Target Price of S$1.43

  • We keep our ADD rating with a higher DDM-based Target Price of S$1.43 for Frasers Logistics & Commercial Trust (SGX:BUOU).
  • Post-merger, Frasers Logistics & Commercial Trust has emerged as the 8th largest SREIT by market cap within our SREITs coverage. The expanded portfolio of S$5.7bn comprises logistics and industrial properties (59%) and commercial/business parks assets (41%), spread across Australia (48% of AUM), Europe, Singapore (22%) and the UK as at Sep 2019.
  • With a wider investment mandate and as the sole logistics/industrial and commercial/business park asset recycling vehicle for its sponsor, Frasers Logistics & Commercial Trust should benefit from its robust expanded pipeline of ROFR assets, in our view.

Logistics/industrial segment remains resilient

  • Frasers Logistics & Commercial Trust indicated that its industrial/logistics portfolio remains resilient even during the challenging pandemic situation, with rental collection rate to date remaining high. We attribute this resilience to both tenant quality and trade sector mix.
  • At end-2QFY9/20, the top 10 tenants comprising major MNCs or its affiliates account for 27.8% of Frasers Logistics & Commercial Trust’s logistics/industrial portfolio. By tenant sub-sector mix, 74.8% of the logistics/industrial portfolio comes from essential services sectors such as logistics and consumer.

Stronger inorganic growth outlook to offset retail drag

  • Meanwhile, the impact of lockdown in Australia and circuit breaker in Singapore is likely to drag on Frasers Logistics & Commercial Trust’s newly-consolidated commercial portfolio in the near term, in our view. Various relief measures have been rolled out including government-mandated property tax rebates and out-of-pocket rental waivers. However, we believe that the impact is likely to be minimal as the retail contributions make up c.5% of the enlarged portfolio revenue.
  • More importantly, the larger and stronger inorganic growth prospects would more than compensate for the near term slower retail contributions, in our view.

Higher gearing post-merger, scope for some interest cost savings?

  • We estimate Frasers Logistics & Commercial Trust’s post-merger gearing would rise to c.37%. Blended debt maturity and interest cost could shorten/rise to c.2.9 years and c.2.3% respectively, in our view. However, we anticipate these changes to be temporary as Frasers Commercial Trust had redeemed S$159.5m of its fixed rate notes on 9 Jul 2020. In our view, we think these notes could likely be refinanced at lower than prevailing rates, thanks to the low interest rate regime.

We like Frasers Logistics & Commercial Trust’s inorganic growth potential and income resilience

LOCK Mun Yee CGS-CIMB Research | EING Kar Mei CFA CGS-CIMB Research | https://www.cgs-cimb.com 2020-07-13
SGX Stock Analyst Report ADD MAINTAIN ADD 1.43 UP 1.30