Frasers Logistics & Commercial Trust - DBS Research 2021-05-06: Portfolio Rejuvenation Underway


Frasers Logistics & Commercial Trust - Portfolio Rejuvenation Underway

  • Frasers Logistics & Commercial Trust's 1H21 DPU of 3.80 cents in line with estimates; annualised yield of 5.2%.
  • Divested four fully valued assets and looking to redeploy capital.
  • Slight decline in occupancy for commercial portfolio but leasing enquiries are picking up.
  • Maintain BUY with a target price of S$1.85.

FLCT's 1H21 DPU of 3.80 cents in line with expectations

  • Frasers Logistics & Commercial Trust (SGX:BUOU)'s 1H21 revenue of S$231.7m was significantly higher y-o-y mainly due to the merger with FCOT (only completed in April 2020) and subsequent acquisitions
    • However, it was partially offset by S$1.2m of rental waivers and provisions made
    • Also partially offset by divestments in Queensland (November 2020) and South Australia (March 2021)
  • Frasers Logistics & Commercial Trust's 1H21 distributable income of S$130.4m was 54.3% higher y-o-y
    • Increase in finance costs stem from higher borrowings following the merger
  • Frasers Logistics & Commercial Trust's DPU of S$0.038 for 1H21 is in line with our expectations, forming ~50% of our estimates

Frasers Logistics & Commercial Trust's 1H21 Highlights

Positive rental reversions of 0.1% in 2Q21

  • Positive rental reversions came mainly from renewal of commercial leases.
  • Twelve renewals in Singapore with a rental reversion of 3.7%.
  • One renewal in Australia with a rental reversion of 9.9%.
  • Five logistics lease renewals in Australia were at a negative 3.6% reversion
    • If reversions were calculated based on average rents (as compared to using ending rents), we believe reversions should be positive.
    • Attractive annual escalations of 3.0-3.3% for renewed leases.
    • Renewals were mostly for leases covering 5-7 years, except two leases which were significantly shorter.
    • One of the shorter-term leases was with Amazon, but Management is working to secure the lease for a longer term.

Only 3.5% of portfolio leases will expire in 2H21

  • Expiries spread out evenly across commercial and logistics/industrial leases,
    • Logistics/industrial expiries are mainly from Australia where we expect upside to rent reversions (but could report negative reversions based on Frasers Logistics & Commercial Trust’s way of calculating).
    • Commercial lease expiries are spread out across Singapore and Australia with a small portion in the UK.

Slight decline in portfolio occupancy rate to 96.8%

  • Decline in portfolio occupancy attributed to commercial properties in Singapore and the UK
    • Cross Street Exchange declined 6.4% (two tenants did not renew).
    • Farnborough Business Park declined 2.3% (one tenant did not renew).
  • Expect occupancy rates for Cross Street Exchange and Farnborough Business Park to rebound in the near term
    • Leasing enquiries have been picking up for Cross Street Exchange; mainly from the professional services sector.
    • Farnborough Business Park remains one of the best-quality assets in the area, and Frasers Logistics & Commercial Trust expects to see a flight-to-quality by tenants.
  • Logistics/industrial portfolio maintained 100% occupancy.
  • Slight increase in occupancy at Alexandra Technopark and 357 Collins Street.
  • Increased leasing enquiries in Central Park, Perth
    • Been seeing more enquiries from commodities firms as the sector rebounds.

Healthy leverage ratio of 35.3%

  • Gearing improved 0.9% q-o-q mainly from the repayment of debt using divestment proceeds
  • Maintained low borrowing costs of 1.9%.
  • In advanced negotiations to refinance the rest of S$314m of debt due in 2H21.

Our thoughts

Dale LAI DBS Group Research | Derek TAN DBS Research | https://www.dbsvickers.com/ 2021-05-06
SGX Stock Analyst Report BUY MAINTAIN BUY 1.850 SAME 1.850