Frasers Logistics & Commercial Trust - OCBC Investment 2020-08-06: Standing Firm


Frasers Logistics & Commercial Trust - Standing Firm

  • Largely resilient financial performance.
  • Positive on capital recycling initiatives.
  • Raise Fair Value to S$1.59.

Frasers Logistics & Commercial Trust's 3QFY20 business updates largely point to a resilient performance and outlook

  • Frasers Logistics & Commercial Trust (SGX:BUOU)’s recent 3QFY20 business update gave us confidence that its operational performance and outlook remains largely resilient despite a challenging macro landscape. Revenue, NPI and distributable income jumped 91.9%, 77.0% and 61.1% y-o-y to S$103.7m, S$78.0m and S$61.1m, respectively, due largely to the consolidation of Frasers Commercial Trust following the merger completion.
  • However, even after taking into account the enlarged unit base due to the merger exercise, Frasers Logistics & Commercial Trust’s NAV/unit grew 13.0% to S$1.04 from end-FY19 level. Although not disclosed, we estimate that DPU was up ~3% y-o-y to 1.79 S cents.
  • From our understanding, there were some rental rebates and deferments given to tenants in Singapore and Australia, but not of a material nature. There could also be some further rental relief to be given to SME tenants in 4QFY20.

Capital recycling initiatives to unlock value

  • Operationally, Frasers Logistics & Commercial Trust’s occupancy rate stood at 97.2%, which was down from 100% in the preceding quarter due to the consolidation of the properties from Frasers Commercial Trust.
  • Occupancy was 93.6% for Commercial, and 99.8% for Logistics & Industrial. Approximately 34% of its Logistics & Industrial portfolio has some form of exposure to e-commerce, and we expect performance for this asset class to remain resilient.
  • Portfolio WALE was 5.2 years, with only 1.0% and 8.1% of its gross rental income due for renewal in 4QFY20 and FY21, respectively.
  • Rental reversions were -3.9% for Frasers Logistics & Commercial Trust’s industrial leases, as annual rental escalations embedded in Australia’s leases usually outpace annual market rental growth. For the Commercial segment, rental reversions were positive in Singapore (+12.1%) and UK (+12.8%), but negative in Australia (-8.0%), though this was for only one small lease. In Singapore, the robust rental uplifts were driven by Alexandra Technopark.
  • Separately, Frasers Logistics & Commercial Trust also announced the proposed acquisitions of a logistics property in Melbourne and a business park in UK. The respective initial NPI yields are 5.85% and 6.3%, respectively, while total purchase consideration amounts to S$89.9m. There was also a proposed divestment of the remaining 50% interest in 99 Sandstone Place in Brisbane for A$152.5m (~S$150.5m). This came in at a premium of 12.2% above its book value (as at 30 Jun 2020) and represents an exit cap rate of ~5%.

Bump up Frasers Logistics & Commercial Trust’s fair value estimate to S$1.59

OCBC Research Team OCBC Investment Research | 2020-08-06
SGX Stock Analyst Report BUY MAINTAIN BUY 1.59 UP 1.37