FRASERS LOGISTICS & COMMERCIAL TRUST (SGX:BUOU)
Frasers Logistics & Commercial Trust 3QFY21 Update - Riding On E-Commerce Growth & Sizeable Sponsor Pipeline
- Frasers Logistics & Commercial Trust (SGX:BUOU)’s 3QFY21 business update was largely in line with expectations. Commercial properties in Singapore and the UK registered positive rental reversion of 4.0% and 4.7% respectively. Occupancies for logistics properties in Australia, Europe and the UK were maintained at 100% in 3QFY21. Farnborough Business Park and Blythe Valley Park suffered transitory vacancies.
- Frasers Logistics & Commercial Trust's distribution yield is attractive at 4.9% for FY21 and 5.1% for FY22. Maintain BUY. Target price: S$1.79.
Frasers Logistics & Commercial Trust (FLCT) provided 3QFY21 business update:
- Business park properties in Singapore and the UK provided positive reversions. Frasers Logistics & Commercial Trust achieved positive rental reversion of 0.8% for 74,865sqm of new/renewed leases completed in 3QFY21. Commercial properties in Singapore registered positive rental reversion of 4% driven by Alexandra Technology Park (ATP) where signing rents were firm at high S$3 to low S$4 psf pm. Business park properties in the UK also recorded positive rental reversion of 4.7%.
- Rents for logistics spaces in Australia have trended higher, especially for Melbourne (+2.4% y-o-y). However, market rents have not kept up with the recurrent annual escalation of 3.1%, which resulted in negative rental reversion of 3.3%.
- Transitory vacancies at Farnborough Business Park and Blythe Valley Park. Occupancies for logistics properties in Australia, Europe and the UK were maintained at 100% in 3QFY21. The average occupancy for commercial portfolio eased 1.8ppt q-o-q to 91.8% due to vacancies at business park properties in the UK. Occupancy at Farnborough Business Park dipped 6.3ppt q-o-q to 85.5%. Engineering and construction specialist Fluor saw project cancellations due to the COVID-19 pandemic and returned excess space of 3,000sqm. The vacant building is currently being refurbished to Grade A specifications. Occupancy at Blythe Valley Park dipped 5.2ppt q-o-q to 90.5% and the vacant space is covered by a two-year rental guarantee.
- Completed acquisitions of six properties in Europe and the UK. Frasers Logistics & Commercial Trust's announced acquisition of six freehold properties in Europe and the UK for S$564.2m on 24 May 21. It has successfully completed private placement of 240m new units at S$1.399, which is at the top end of the price range, to raise S$335.8m to finance the acquisition in Jun 21. Frasers Logistics & Commercial Trust has completed the acquisition of three logistics properties in Germany as well as one logistics property and one business park property in the UK on 4 Jun 21. The acquisition of one logistics property in the Netherlands was subsequently completed on 30 Jun 21. These acquisitions are expected to be accretive to pro forma 1HFY21 DPU by 1.8%.
- Well spread-out debt maturity profile. Borrowings due in 4QFY21 have been refinanced by a 7-year fixed rate notes issuance of S$150m at 2.18% under the Sustainable Finance Framework. 95% of the borrowings due in FY22 matures in 2HFY22. Cost of debts has improved 0.2ppt q-o-q to 1.7% and interest coverage ratio improved 0.2x q-o-q to 7x. Aggregate leverage is healthy at 36.4%.
STOCK IMPACT
- 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.
- Core holding included in major indices. The completion of the merger between Frasers Logistics Trust and Frasers Commercial Trust on 29 Apr 20 has made Frasers Logistics & Commercial Trust the 6th 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). It has a long WALE of 4.9 years.
- Growth in e-commerce creates demand for more logistics space. Online retailers are heavy-duty users of logistics space. Online retail sales are supported by 3x the logistics space required for brick & mortar retail sales. On average, every US$1b of retail sales creates demand for 1m sf of logistics space. The US-China trade conflict and the COVID-19 pandemic have caused disruptions and exposed the vulnerabilities of lean just-in-time supply chains. It is estimated that the transition from just-in-time to just-in-case supply chains would increase inventories by 5-10%.
- Potential for appreciation of capital values. According to CBRE, 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. In Europe, prime yields have hit a record low of 3.35% for Germany and 3.0% for the Netherlands. Frasers Logistics & Commercial Trust’s logistics portfolio is currently valued at cap rates at mid-to-high 5%. Thus, there is much upside for valuation of its logistics properties when revalued at end-FY21.
EARNINGS REVISION/RISK
- We maintain our existing DPU forecast.
VALUATION/RECOMMENDATION
- Buying yield and growth from logistics. Frasers Logistics & Commercial Trust provides a distribution yield of 5.1% for FY22, much more attractive than Mapletree Logistics Trust (SGX:M44U)’s 4.0%. It trades at P/NAV of 1.34x compared with peers’ 1.61x.
- 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.
- Maintain BUY. Our target price of S$1.79 is based on DDM (cost of equity: 6.25%, terminal growth: 2.0%).
SHARE PRICE CATALYST
- Continued growth and expansion by tapping into sponsor pipeline.
- Compression of cap rates for logistics properties leading to sizeable revaluation gains.
Jonathan KOH CFA
UOB Kay Hian Research
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https://research.uobkayhian.com/
2021-08-10
SGX Stock
Analyst Report
1.790
SAME
1.790
