Frasers Logistics & Commercial Trust - CGS-CIMB Research 2021-04-09: FLCT To Be Included As STI Constituent

FRASERS LOGISTICS & COMMERCIAL TRUST (SGX:BUOU)

Frasers Logistics & Commercial Trust - FLCT To Be Included As STI Constituent

Frasers Logistics & Commercial Trust (SGX:BUOU) to be included in the STI from 13 Apr 2021.
Stable portfolio, stronger forex could provide some earnings tailwinds.
Reiterate ADD, with an unchanged DDM-based target price of S$1.57.

According to its company announcement, Frasers Logistics & Commercial Trust will be included in the Straits Times Index (STI) from 13 Apr 2021. Post this inclusion, Frasers Logistics & Commercial Trust will be a constituent of 3 indices –
- FTSE EPRA NAREIT,
- STI, and
- GPR 250.
We believe this will likely boost Frasers Logistics & Commercial Trust’s profile and investor visibility. Based on our calculations, we estimate Frasers Logistics & Commercial Trust’s weight in the STI to be ~1.14%, based on Frasers Logistics & Commercial Trust's share price as at 8 Apr 2021.
In the medium term, as Frasers Logistics & Commercial Trust continues to tap on inorganic growth opportunities & potentially expand its market cap, we believe the REIT will continue to garner more investor attention.

Operations-wise, according to the 4Q20 update of property consultant Jones Lang Lasalle, the Australia industrial market remained stable with national leasing activity trending up on a q-o-q basis as occupier activity picked up in Melbourne, Perth and Sydney. Based on the same report, market rents continued to tick up slightly y-o-y in Sydney and Melbourne South East area while Perth remained stable.
Looking ahead, we believe the demand for logistics and industrial space will continue to be underpinned by the pick-up in economic activity amid a global recovery. As at end 1QFY21 (end-Dec 2020), Frasers Logistics & Commercial Trust has 2% and 5.7% of industrial portfolio leases to be renewed in remainder of FY21F and FY22F, respectively, in Australia.
Meanwhile, we anticipate the Singapore commercial portion, particularly the retail component at Cross Street Exchange, should benefit from the easing of workplace restrictions in Singapore, to allow up to 75% of employees to return to the workplace from 5 Apr 2021.

Based on Bloomberg data, the A$ and £ had strengthened against the S$ by ~0.6% and 2.2% respectively since Jan to Apr 2021, and by a quarterly average ~10% and 4.5% respectively from a year ago. We believe this could provide another tailwind to Frasers Logistics & Commercial Trust’s earnings.
We estimate Frasers Logistics & Commercial Trust generates 80-85% of portfolio revenue from its Australia and Europe assets. To be sure, Frasers Logistics & Commercial Trust adopts a six-monthly rolling hedge policy for its overseas earnings, and the strengthening trend in the A$ and € would likely benefit distribution income, in our view.

We leave our FY21-23F DPU estimates and DDM-based target price of Frasers Logistics & Commercial Trust unchanged. We continue to like Frasers Logistics & Commercial Trust’s visible inorganic growth potential and income resilience, backed by a long WALE (weighted average lease expiry) profile.
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 which makes up a small 2.4% of Frasers Logistics & Commercial Trust's overall income at end-1Q21, and A$ and € volatility.

LOCK Mun Yee CGS-CIMB Research | EING Kar Mei CFA CGS-CIMB Research | https://www.cgs-cimb.com 2021-04-09

SGX Stock Analyst Report ADD MAINTAIN ADD 1.570 SAME 1.570