Frasers Logistics & Commercial Trust - DBS Research 2020-11-09: Powering Into FY21

SGinvestors.io

FRASERS LOGISTICS & COMMERCIAL TRUST (SGX:BUOU)

Frasers Logistics & Commercial Trust - Powering Into FY21

• Frasers Logistics & Commercial Trust's FY20 revenue increased 53.0% to S$332m due to merger and accretive acquisitions.
• DPU of 7.12 cents for FY20 is a 1.7% increase y-o-y.
• Projecting a 7.7% growth in FY21 DPU on full-year contribution from enlarged portfolio.
• Maintain BUY with a target price of S$1.85; 35% upside from current Frasers Logistics & Commercial Trust Share Price.

Results in line: 2H20 DPU of 3.65 cents increased 5.5% y-o-y

• Frasers Logistics & Commercial Trust (SGX:BUOU)'s 2H20 revenue of S$213.3m was 94.6% higher y-o-y due to the contributions from the merger with FCOT and acquisitions made in the year.
• NPI of S$161.4m in 2H20 was 80.6% higher y-o-y.
  • Due to merger with Frasers Commercial Trust and acquisitions made in the year.
  • Partly offset by three divestments made in the year and rental waivers made for COVID-19 pandemic.
• Collective impact of S$5.7m.
• Frasers Logistics & Commercial Trust's 2H20 DPU of 3.65 cents is 5.5% higher y-o-y.
• Frasers Logistics & Commercial Trust's FY20 DPU of 7.12 cents is 1.7% higher y-o-y.
  • In line with our projections for FY20. Translates into a dividend yield of 5.2%.
• Carrying value of portfolio increased S$93.7m, a 1.5% increase y-o-y.
  • Mainly due to cap rate compression for logistics properties.
    • c.27-bp cap rate compression for Australia and c.13-bp cap rate compression for Europe.
  • Valuation increase for all commercial properties except Cross Street Exchange.
    • Occupancy and rental rates expected to come under pressure in FY21.

Logistics portfolio at full occupancy and commercial portfolio expected to remain resilient

• Frasers Logistics & Commercial Trust's portfolio occupancy inched up to 97.5%
  • Industrial portfolio occupancy of 100%.
  • Commercial portfolio: Lower occupancy at Central Park (80.8%) and higher occupancy at Alexandra Technopark (97.9%).
  • Leasing activities in Perth is increasing as the commodity industry recovers; expect Central Park occupancy rate to improve in FY21.
• Healthy portfolio WALE of 4.9 years.
• 2H20 rental reversion of -0.1%, a significant improvement from the -3.2% reversion in the previous quarter.
  • Negative rental reversion for industrial portfolio in 4Q20; -4.4% in 2H20.
  • Rental reversion for commercial portfolio remains positive; +8.3% in 2H20.
  • 133,000 sqm of leases signed in 4Q20.
• Only 7.9% of portfolio will be due for expiry in FY21.
  • 13 industrial leases (3.6%) and 57 commercial leases (4.3%).
  • Majority of commercial leases expiring in FY21 will come from Alexandra Technopark, China Square Central and 357 Collins Street.
  • Rental reversions at Alexandra Technopark projected to remain strong.
  • Rental rates at China Square Central likely to face some pressure, especially for retail leases.
  • COVID-19 pandemic and continued lockdown in Melbourne also expected to weigh down on rental reversions at 357 Collins Street.

Capital management: Cost of borrowings reduced to 1.9%

• All-in cost of borrowings lowered to 1.9%, a 0.2-ppt q-o-q reduction.
• Gearing was maintained at 37.4%.
  • Remaining debt headroom of S$1.65bn.
  • Healthy ICR of 6.4x.
• Gearing likely to improve once the divestment of the 50% stake in Sandstone Place is completed in December 2020.
  • Sales proceeds of S$150.5m will be used to partially repay debt.
• S$677m of borrowings due to mature in FY21.
  • Majority of borrowings due will be GBP, S$ and AUD loans.
  • c.48% of loans will only mature in 2H21.
• Expect further savings in borrowing costs when FY21 loans are refinanced.
  • Borrowing cost of AUD and S$ loans that are expiring in FY21 are approximately 2.5-3.0%.

Organic growth in portfolio

• We continue to like Frasers Logistics & Commercial Trust for its stable portfolio metrics that are underpinned by annual rental escalations for a majority of its leases. Moreover, the full-year impact from the merger with Frasers Commercial Trust will be felt in FY21, coupled with the acquisitions made during in FY20. Based on our projections, DPU is expected to grow by c.7.7% in FY21.
• Frasers Logistics & Commercial Trust’s stable capital management metrics provide it with a debt headroom of more than S$1.65bn. We have assumed acquisitions of S$600m by the end of FY21 in our projections and are confident that Frasers Logistics & Commercial Trust will be able to deliver this growth with a ROFR pipeline of S$5.0bn from its Sponsor.
• In addition to potential acquisitions, Frasers Logistics & Commercial Trust can also look to carry out AEIs within it S$6.2bn portfolio to unlock value. An estimated 18,000 sqm of unutilised GFA remain at Farnborough Business Park. Frasers Logistics & Commercial Trust will only consider tapping on this additional GFA if it is able to get a pre-commitment.
• At its current Frasers Logistics & Commercial Trust Share Price, Frasers Logistics & Commercial Trust is the cheapest large-cap industrial REIT with a forward dividend yield of 5.6% for FY21. Our target price of S$1.85 also implies a potential 35% upside to its current share price.
• 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.
• We maintain our BUY recommendation on Frasers Logistics & Commercial Trust with a target price of S$1.85.

Dale LAI DBS Group Research | Derek TAN DBS Research | https://www.dbsvickers.com/ 2020-11-09

SGX Stock Analyst Report BUY MAINTAIN BUY 1.85 UP 1.600