Frasers Logistics & Commercial Trust - CGS-CIMB Research 2021-05-06: Business As Usual

FRASERS LOGISTICS & COMMERCIAL TRUST (SGX:BUOU)

Frasers Logistics & Commercial Trust - Business As Usual

Frasers Logistics & Commercial Trust's 1HFY21 DPU of 3.80 cents is within expectations, at 48.1% of our FY21F forecast.
Portfolio rental reversion at +0.1% as at 1HFY21 although occupancy slipped marginally.
Reiterate ADD with a DDM-based target price of S$1.57.

Frasers Logistics & Commercial Trust (FLCT, SGX:BUOU) reported gross revenue/net property income of S$231.7m/S$179.8m (+95.1%/+77.2% y-o-y) for 1HFY21. Distributable income increased 71.7% y-o-y to S$130.4m (DPU: 3.8 cents, +9.5% y-o-y).
The y-o-y improvement was due to the effect of merger with Frasers Commercial Trust (FCOT), income from new acquisitions, and stronger A$ and € vs S$, partly offset by income vacuum from asset divestments and S$1.2m in rental waivers and allowance for doubtful receivables to selected tenants affected by COVID-19.

Frasers Logistics & Commercial Trust's overall portfolio occupancy dipped a slight 0.4%pt q-o-q to 96.8% in 2QFY21, dragged down by a lower commercial occupancy of 92.6% whilst logistics/industrial portfolio remained fully occupied. Management indicated that it expects improved occupancy rate in the coming quarters with better leasing enquiries at some of its Singapore properties.
Frasers Logistics & Commercial Trust renewed 62,587 sq m of space in 2QFY21 at an average +0.1% rental reversion. Rental reversions for its commercial space averaged +4% while industrial/logistics spaces were re-contracted at an average -3.6%.
Frasers Logistics & Commercial Trust has 3.5% of gross rental income due for renewal in 2HFY21F made up of six industrial and 30 commercial leases; and a further 11.1% of gross rental income to be re-contracted in FY22F. Slightly more than half of the expiries in FY21-22F are from its logistics/industrial properties.

Frasers Logistics & Commercial Trust’s aggregate leverage stands at 35.3% at end-1HFY21. Interest coverage ratio remained strong at 6.8x, and average cost of borrowing was at 1.9% at end-Mar. It has hedged a higher 70.6% of its debts into fixed rates in 1HFY21 and is in the process of refinancing S$314m of its debts due in FY21F.
Frasers Logistics & Commercial Trust has a debt headroom of S$1.9bn (assuming 50% gearing) and is well positioned to tap into acquisition or asset enhancement/development opportunities.

We leave our FY21-23F DPU estimates for Frasers Logistics & Commercial Trust unchanged and maintain our DDM-based target price at S$1.57.
We continue to like Frasers Logistics & Commercial Trust’s visible inorganic growth potential and income resilience, backed by a long WALE.
See
Potential re-rating catalyst: accretive new acquisitions.
Downside risks: drag from retail operations which account for a small 1.8% of Frasers Logistics & Commercial Trust's overall income at end-1HFY21, and A$ and € volatility.

LOCK Mun Yee CGS-CIMB Research | EING Kar Mei CFA CGS-CIMB Research | https://www.cgs-cimb.com 2021-05-06

SGX Stock Analyst Report ADD MAINTAIN ADD 1.570 SAME 1.570