FRASERS LOGISTICS & COMMERCIAL TRUST (SGX:BUOU)
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
- Provides Frasers Logistics & Commercial Trust with a debt headroom of more than S$1.9bn.
- Maintained low borrowing costs of 1.9%.
- In advanced negotiations to refinance the rest of S$314m of debt due in 2H21.
Our thoughts
- We remain positive on Frasers Logistics & Commercial Trust given its stable and robust earnings. Its DPU of 3.80 cents in 1H21 is in line with our projections despite the recent divestment of four assets in Australia. With its organic portfolio growth from rental escalations and positive rental reversions, we remain confident that Frasers Logistics & Commercial Trust will deliver a FY21 DPU of 7.67 cents, which implies a current yield of 5.2%.
- Despite the slight weakening of portfolio occupancy led by commercial properties in Singapore and the UK, it was within our expectations. Commercial tenants in Singapore continue to face pressure as the COVID-19 restrictions remain in place. In the UK, lockdown measures also weighed in on businesses and there could be further consolidation of space. However, the positive rental reversions reported by Frasers Logistics & Commercial Trust’s commercial leases over the past few quarters should help maintain overall performance by the commercial portfolio. Leasing momentum for Central Park in Perth should also pick up with the recovery of the commodity sector.
- Given their debt headroom and acquisition pipeline, we believe Frasers Logistics & Commercial Trust’s next acquisition will not be too far off. With its portfolio operations stabilising, we anticipate that Frasers Logistics & Commercial Trust would look to recycle its capital and grow its portfolio in the near future. Its recent inclusion into the STI Index will also continue its re-rating momentum.
- We are maintaining our BUY recommendation on Frasers Logistics & Commercial Trust with a target price of S$1.85.
- See
- Frasers Logistics & Commercial Trust's Share Price,
- Frasers Logistics & Commercial Trust's Target Price,
- Frasers Logistics & Commercial Trust's Analyst Reports,
- Frasers Logistics & Commercial Trust's Dividend History,
- Frasers Logistics & Commercial Trust's Announcements,
- Frasers Logistics & Commercial Trust's Latest News.
Dale LAI
DBS Group Research
|
Derek TAN
DBS Research
|
https://www.dbsvickers.com/
2021-05-06
SGX Stock
Analyst Report
1.850
SAME
1.850
