FRASERS LOGISTICS & COMMERCIAL TRUST (SGX:BUOU)
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
- In terms of financial position, Frasers Logistics & Commercial Trust’s aggregate leverage was 37.4%, with a healthy interest coverage ratio of 6.7x. It has a debt headroom of S$1.5b before reaching the 50% regulatory gearing limit.
- After incorporating the merger of Frasers Commercial Trust and lowering our cost of equity assumption from 7.1% to 6.5% to take into account Frasers Logistics & Commercial Trust’s more diversified portfolio and positive structural trends within the logistics sector, we derive a higher fair value of S$1.59 (previously S$1.31).
- See Frasers Logistics & Commercial Trust Share Price; Frasers Logistics & Commercial Trust Target Price; Frasers Logistics & Commercial Trust Analyst Reports; Frasers Logistics & Commercial Trust Dividend History; Frasers Logistics & Commercial Trust Announcements; Frasers Logistics & Commercial Trust Latest News.
OCBC Research Team
OCBC Investment Research
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https://www.iocbc.com/
2020-08-06
SGX Stock
Analyst Report
1.59
UP
1.37
