Frasers Logistics & Commercial Trust - CGS-CIMB Research 2021-02-04: Positioned For Growth

FRASERS LOGISTICS & COMMERCIAL TRUST (SGX:BUOU)

Frasers Logistics & Commercial Trust - Positioned For Growth

Frasers Logistics & Commercial Trust maintained high portfolio occupancy of 97.2% at end-1QFY21.
The REIT has significant debt headroom to tap growth strategies.
We reiterate our ADD rating with a higher DDM-based target price of S$1.57.

In its 1QFY21 (Oct 2020 to Dec 2020) business update, Frasers Logistics & Commercial Trust (SGX:BUOU) indicated that overall portfolio occupancy stood at 97.2% at end-1QFY21 (4QFY20: 97.5%). The industrial/logistics portfolio remained fully occupied while the commercial portfolio saw a small slippage to 93.6% take-up due to lower occupancy at Farnborough Business Park.
In 1QFY21, Frasers Logistics & Commercial Trust renewed 2.9% of portfolio lettable area at a -6.9% rental reversion, dragged by renewal and extension of one industrial lease in Victoria and recontracting of a commercial lease in Central Park in Perth. Singapore commercial was relatively steady at a -2% rental reversion while Europe leases were recontracted at flat reversions.
Frasers Logistics & Commercial Trust also indicated that rental waiver granted and COVID-19 provisions amounting to ~S$0.7m were made in 1QFY21.
We believe Frasers Logistics & Commercial Trust’s earnings outlook remains stable with a further 5.5% of leases to be renewed for FY21F of which 56% are commercial leases.

On capital management, Frasers Logistics & Commercial Trust's gearing stands at a healthy 36.2% at end-1QFY21 with interest coverage ratio of 6.5x. It has S$438m of debt maturing in FY21F, which can be refinanced with existing undrawn and new facilities as well as proceeds from the divestment of three properties in South Australia, to be completed by Mar 2021.
Assuming a gearing level of 50%, Frasers Logistics & Commercial Trust has further debt headroom of S$1,181m.

As part of its long term growth strategy, Frasers Logistics & Commercial Trust will continue to manage its assets actively as well as seek inorganic growth via selective development opportunities and tap on acquisition growth opportunities from its sponsor’s ROFR pipeline and third party acquisitions. To this end, management indicated that its sponsor has a sizeable pipeline of more than S$5bn comprising logistics/industrial, commercial and business park properties.
We believe, having grown its AUM to a sizeable ~S$6.3bn at end-Dec 2020 with a diversified spread of industrial/logistics/commercial assets, Frasers Logistics & Commercial Trust is well placed to undertake selective accretive development opportunities.

We lift our Frasers Logistics & Commercial Trust's FY21-23F DPU forecast by 2.04-3.39% to bake in stronger exchange rate assumptions of A$/S$ of S$1 (vs. A$/S$ of 0.95 previously) and £/S$ of S$1.78 (vs. S$1.75 previously) given the strengthening of the overseas currencies. Accordingly, our DDM-based target price for Frasers Logistics & Commercial Trust is lifted to S$1.57.
See
We continue to like Frasers Logistics & Commercial Trust’s visible inorganic growth potential and income resilience, backed by a long WALE.
Potential re-rating catalyst: accretive new acquisitions.
Downside risks: drag from retail operations which makes up a small 2.4% of Frasers Logistics & Commercial Trust’s overall income at end-1QFY21 as well as Aussie dollar and euro volatility.

LOCK Mun Yee CGS-CIMB Research | EING Kar Mei CGS-CIMB Research | https://www.cgs-cimb.com 2021-02-04

SGX Stock Analyst Report ADD MAINTAIN ADD 1.57 UP 1.500