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


Frasers Logistics & Commercial Trust - Powering Into FY21

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

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