Frasers Logistics & Commercial Trust - CGS-CIMB Research 2020-11-06: Stable Performance

FRASERS LOGISTICS & COMMERCIAL TRUST (SGX:BUOU)

Frasers Logistics & Commercial Trust - Stable Performance

Frasers Logistics & Commercial Trust's 2H/FY20 DPU broadly within expectations at 50.1%/97.7% of our FY20F forecast.
Portfolio occupancy remains stable at 97.5%.
Reiterate ADD rating with a higher DDM-based target price of S$1.50.

Frasers Logistics & Commercial Trust (SGX:BUOU) achieved gross revenue/net property income of S$213.3m/S$168.3m (+94.6%/+86.5% y-o-y) in 2HFY9/20. Distributable income increased by 81.7% y-o-y to S$124.9m (DPU: 3.65 cents), accounting for c.50.1% of our FY20F forecast.
The improved performance was due to expanded contributions from the merger with FCOT and income from new acquisitions, partly offset by income vacuum from asset divestments and S$5.7m in rental waivers and provision for doubtful debt for qualifying SME tenants affected by COVID-19.
Frasers Logistics & Commercial Trust's FY20F DPU of 7.12 cents was broadly within our expectations at 97.7% of our forecast. Book NAV stood at S$1.10 at end-4Q as the trust revalued its enlarged portfolio up by 1.8%.

In terms of operating metrics, Frasers Logistics & Commercial Trust's portfolio occupancy stood at 97.5%, with a long weighted average lease to expiry (WALE) of 4.9 years.
In FY20, Frasers Logistics & Commercial Trust renewed/leased 267,996 sqm of industrial and commercial space, of which 65% were completed in 2H. Rental reversions for its commercial space averaged +8.3% while industrial/logistics spaces were re-contracted at an average -4.4%.
Frasers Logistics & Commercial Trust has 7.9% of gross rental income due for renewal in FY21F and a further 11.9% in FY22F. Slightly more than half of the expiries for FY21-22F are from its logistics/industrial properties, largely in Australia, and the remaining are coming mainly from its Singapore and UK commercial assets.

Frasers Logistics & Commercial Trust’s aggregate leverage stands at 37.4% at end-4Q. Interest coverage ratio remains strong at 6.4x, and average cost of borrowing is at 1.9%. It has c.25% of its total debt due to be refinanced in FY21F. With the prevailing low interest rate environment, we believe the trust can likely continue to achieve interest cost savings.
In terms of inorganic growth, Frasers Logistics & Commercial Trust is well positioned to tap into acquisition opportunities with its robust balance sheet, significant debt headroom of S$1,651m (based on a 50% gearing ceiling) and deep sponsor pipeline.

We tweak our Frasers Logistics & Commercial Trust's FY21-22F DPS forecast slightly down by 0.52-1.75% post results. However, our DDM-based target price is raised to S$1.50 as we lower our cost of equity assumption to 7.32%.
We continue to like Frasers Logistics & Commercial Trust’s visible inorganic growth potential and income resilience, backed by a long WALE.
See Frasers Logistics & Commercial Trust Share Price; Frasers Logistics & Commercial Trust Target Price; Frasers Logistics & Commercial Trust Analyst Reports; Frasers Logistics & Commercial Trust Dividend History; Frasers Logistics & Commercial Trust Announcements; Frasers Logistics & Commercial Trust Latest News.
Potential re-rating catalyst: accretive new acquisitions.
Downside risks: drag from retail operations and A$ and € volatility.

LOCK Mun Yee CGS-CIMB Research | EING Kar Mei CFA CGS-CIMB Research | https://www.cgs-cimb.com 2020-11-06

SGX Stock Analyst Report ADD MAINTAIN ADD 1.50 UP 1.430