Frasers Logistics & Commercial Trust - UOB Kay Hian 2021-06-23: Riding On E-Commerce Growth & Sizeable Sponsor Pipeline

FRASERS LOGISTICS & COMMERCIAL TRUST (SGX:BUOU)

Frasers Logistics & Commercial Trust - Riding On E-Commerce Growth & Sizeable Sponsor Pipeline

Frasers Logistics & Commercial Trust (FLCT) benefits from structural change in Australia as households switched to online retail and yields were compressed by an average of 51bp y-o-y in 1Q21. Germany has witnessed a strong recovery supported by the manufacturing sector and continued growth in e-commerce.
We expect Frasers Logistics & Commercial Trust to pivot toward the New Economy through expansion in logistics and business park properties. Frasers Logistics & Commercial Trust's distribution yield is attractive at 5.4% for FY21 and 5.7% for FY22. Re-initiate coverage with BUY. Target: S$1.79.

Frasers Logistics & Commercial Trust (SGX:BUOU) has right of first refusal to acquire 64 properties with net lettable area (NLA) of 1.9m sqm in the Asia Pacific region and Europe. The acquisition pipeline provided by sponsor Frasers Property (SGX:TQ5) is valued at S$5.9b as of Sep 20.
Frasers Logistics & Commercial Trust has just completed the acquisition of four freehold logistics properties in Europe from Frasers Property. Together with the acquisition of two freehold properties in the UK from a third-party vendor, the acquisitions are accretive to pro forma 1HFY21 DPU by 1.8%.

About 31.4% of Frasers Logistics & Commercial Trust’s tenants for its logistics portfolio are involved in e-commerce and/or e-fulfilment activities. The proportion has increased to 34% with the completion of the latest acquisitions.

Penetration of online retail sales for Australia jumped 3.3ppt to 12.6% in 2020. The acceleration in penetration of online retail sales is structural and did not reverse post-lockdown. Yields were compressed by 46bp, 57bp and 50bp y-o-y respectively to 4.25% in Sydney, 4.43% in Melbourne and 5.00% in Brisbane due to an abundance of liquidity competing to acquire tenanted logistics properties at prime locations.

The logistics market in Germany is powered by the recovery of the manufacturing sector and continued growth in online retail sales. The take-up for logistics space increased 13% y-o-y to 1.6m sqm in 1Q21. Vacancy rate was ultra-low at 1.3% for prime locations due to persistent shortage of logistics space. The average rents for logistics space increased 2% y-o-y to €6.43/sqm/month in 1Q21. Yield fell further by 0.2ppt y-o-y to 3.40%.

Frasers Logistics & Commercial Trust invests in income-producing properties used predominantly for logistics, commercial (CBD office space) or business park (non-CBD office and R&D space) purposes. It focuses on the Asia Pacific region and Europe. Its portfolio comprises 103 properties valued at S$6.8b as of Jun 21, diversified across five developed markets – Australia, Germany, Singapore, the Netherlands and the UK.

The completion of the merger between Frasers Logistics Trust (FLT) and Frasers Commercial Trust (FCOT) on 29 Apr 20 has made Frasers Logistics & Commercial Trust the sixth-largest S-REIT. Frasers Logistics & Commercial Trust is a constituent of FTSE EPRA NAREIT Developed Index and FSSTI. Freehold properties made up 81.3% of Frasers Logistics & Commercial Trust’s total assets under management (AUM).

We forecast DPU of 7.5 cents for 2021F and 7.8 cents for 2022F from Frasers Logistics & Commercial Trust.

Continued expansion by tapping on sponsor pipeline.
Compression of cap rates for logistics properties leading to sizeable revaluation gains.

Jonathan KOH CFA UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-06-23

SGX Stock Analyst Report BUY MAINTAIN BUY 1.790 SAME 1.790