-->

SGinvestors.io > Analysts Say > Research Reports

Frasers Logistics & Commercial Trust - DBS Research 2020-09-25: The Pipeline Others Can Only Dream Of

FRASERS LOGISTICS & COMMERCIAL TRUST (SGX:BUOU) | SGinvestors.io FRASERS LOGISTICS & COMMERCIAL TRUST (SGX:BUOU)

Frasers Logistics & Commercial Trust - The Pipeline Others Can Only Dream Of

  • Pricing in S$600m of accretive acquisitions in FY21; supported by ROFR pipeline of more than S$5.0bn.
  • Healthy gearing of 37.4% and debt headroom of c.S$1.6bn conducive for further growth.
  • Undemanding valuations; Frasers Logistics & Commercial Trust's DPU growth of more than 5% is higher than large-cap peers.



Frasers Logistics & Commercial Trust’s portfolio has grown more than three times in three years



ROFR pipeline from Sponsor in excess of S$5.0bn remains

  • Largest ROFR pipeline among S-REITs. Having already acquired more than S$300m of properties from its Sponsor, Frasers Logistics & Commercial Trust still has a pipeline worth more than S$5.0bn, the largest among S-REITs. The pipeline includes a good mix of assets in Australia, Europe, UK, Singapore and rest of Asia.
  • Approximately 75% of the pipeline (by NLA) is logistics and industrial properties, while the rest is made up of commercial buildings and business parks.
  • The breakdown of the pipeline assets includes:
    1. Australia – c.40 logistics/industrial and office properties valued at more than S$1.4bn.
    2. Europe – c.25 logistics/industrial properties valued at approximately S$900m; pipeline is mainly in Germany
    3. UK – 4 business parks valued at c.S$1.2bn
    4. Singapore – 4 office/business park properties valued at c.2.0bn
  • As a large portion of the pipeline are logistics/industrial assets and majority are overseas, we expect their yields to be accretive for Frasers Logistics & Commercial Trust. For example, Frasers Logistics & Commercial Trust’s most recent acquisition of a logistics property in Australia and business park in the UK were purchased at yields of 5.9-6.3%.


Pricing in further expansion in portfolio


Portfolio expansion assumed at 10%.

  • Given that Frasers Logistics & Commercial Trust’s portfolio has grown at a CAGR of c.47% over the last three years, we have priced in S$600m of acquisitions for FY21, which is in line with an average acquisition momentum of c.10% of its portfolio AUM annually. In our view, we believe that c.10% growth in portfolio is achievable especially given Frasers Logistics & Commercial Trust’s large ROFE pipeline from its Sponsor and that logistics properties will continue to remain attractive in a post COVID-19 world, supported by robust demand from e-commerce.
  • We have thus assumed that the acquisitions will be funded by 40% debt and 60% equity, at a conservative yield of 5.5%. As we have assumed the acquisitions will be completed by the end of FY21, the implied DPU yield for FY22F is 4.3% based on our revised Target Price of S$1.85.

Debt headroom of c.S$1.6bn conducive for growth.



Assumed acquisitions well within reach

  • We continue to like Frasers Logistics & Commercial Trust given its robust portfolio metrics post consolidation.
  • In 3QFY20, Frasers Logistics & Commercial Trust reported healthy portfolio occupancy of 97.2% with only 1.0% of leases due to expire in 4QFY20. The bulk of the vacancies are from its newly refurbished Cross Street Exchange, and we expect occupancy at the property to improve as we get past the ongoing COVID-19 pandemic.
  • Our assumed acquisitions of S$600m in FY21F is well within Frasers Logistics & Commercial Trust’s reach as it continues to have a ROFR pipeline worth more than S$5.0bn from its Sponsor, offering a strong visibility of continued inorganic growth in the coming years. In addition to the c.S$1.4bn of pipeline assets in Australia, we believe that acquisitions in the near-term could come from Germany (worth c.S$750m) and the UK (worth c.S$1.2bn).

Forward yields are justified for a large-cap industrial S-REIT.



Our views

  • We acknowledge that Frasers Logistics & Commercial Trust’s commercial portfolio may face some near-term pressures from the ongoing COVID-19 pandemic, but the impact is mitigated from recently acquired properties and from annual rental escalations.
  • We note that Frasers Logistics & Commercial Trust’s logistics and industrial properties, which make up c.60% of its portfolio, continues to enjoy very strong occupancy of 99.8%, and the average annual rental escalations of between 2-4% will help mitigate any near-term weaknesses. Moreover, Frasers Logistics & Commercial Trust’s largest commercial property, Cross Street Exchange, is still going through its first cycle of lease renewals since its refurbishment and we expect the property to record positive rental reversions in addition to an improvement in occupancy.

We maintain our BUY recommendation with a higher Target Price of S$1.85.






Dale LAI DBS Group Research | Derek TAN DBS Research | https://www.dbsvickers.com/ 2020-09-25
SGX Stock Analyst Report BUY MAINTAIN BUY 1.85 UP 1.600


Shared by on
Tags:

Advertisement



MOST TALKED ABOUT STOCKS / REITS OF THE WEEK



loading.......


View More SGX Listed Stocks »
View More SGX Listed REITs »