Frasers Logistics & Commercial Trust - CGS-CIMB Research 2021-08-05: Fairly Steady Quarter

FRASERS LOGISTICS & COMMERCIAL TRUST (SGX:BUOU)

Frasers Logistics & Commercial Trust - Fairly Steady Quarter

Frasers Logistics & Commercial Trust saw stable operating and financial metrics in 3QFY9/21.
It retained high portfolio occupancy with slight positive reversions.
Reiterate ADD on Frasers Logistics & Commercial Trust, with a higher DDM-based target price of S$1.62

In its 3QFY21 (Apr 2021 to Jun 2021) business update, Frasers Logistics & Commercial Trust (FLCT, SGX:BUOU) indicated that its overall portfolio occupancy stood at 96.3% as at end-3QFY21 (2QFY21: 96.8%). Its industrial/logistics (L&I) portfolio remained fully occupied, while its commercial portfolio saw a small slippage to a 91.8% take-up due to lower occupancy at Farnborough Business Park (FBP) and Blythe Valley Park (BVP).
In 3QFY21, Frasers Logistics & Commercial Trust renewed 74,865 sq m of leases (2.8% of its portfolio lettable area) at a +0.8% rental reversion. It granted S$1.1m in rental rebates for 9MFY21, comprising rental waivers and allowance for doubtful receivables due to COVID-19.
Frasers Logistics & Commercial Trust has a remaining 2% of gross rental income to be re-contracted in 4QFY21F and a further 9.8% in FY3/22F, of which 54% are from the L&I segment, by our estimates.

3Q rental reversions in the L&I portfolio averaged -2%. Australia continued to post negative reversions of 3.3% as step-up expansion outpaced market rental growth; this was moderated by a positive reversion of 3.7% in Europe.
Meanwhile, within the commercial segment, Singapore enjoyed positive reversions of 4%, while Australia renewals remained stable in 3QFY21. Commercial portfolio occupancy experienced some volatility in 3QFY21, as Fraser Business Park (FBP) saw a release of space by a tenant. Blythe Valley Park (BVP) experienced lower take up, but this was mitigated by in-place rental guarantees.
Frasers Logistics & Commercial Trust intends to undertake a £2m-3m asset enhancement at FBP to reposition the property as a Grade A building before re-leasing the property. We believe Frasers Logistics & Commercial Trust should be able to achieve a modest positive rental reversion post-AEI.

Gearing stood at a healthy 36.4% as at end-3QFY1, with interest coverage ratio at 7x. Assuming a gearing level of 50%, Frasers Logistics & Commercial Trust has further debt headroom of ~S$1.9bn to tap inorganic growth opportunities.
Management indicated that it would look for acquisition growth opportunities from both its sponsor’s ROFR pipeline or via third-party acquisitions, particularly in Europe and the UK.

We tweak up our FY21-23F DPU estimates for Frasers Logistics & Commercial Trust by 0.05%-2.78% to bake in contributions from the new UK and Europe acquisitions completed in Jun 2021, as well as to adjust for the recent private placement to partly fund these purchases. Accordingly our DDM-based target price for Frasers Logistics & Commercial Trust is raised to S$1.62.
See
We continue to like Frasers Logistics & Commercial Trust’s visible inorganic growth potential and income resilience, backed by a long WALE.
Potential re-rating catalyst: accretive new acquisitions.
Downside risks: drag from retail operations, which account for a small 1.6% of Frasers Logistics & Commercial Trust's overall income as at end-3QFY21, and A$ and € volatility.

LOCK Mun Yee CGS-CIMB Research | EING Kar Mei CFA CGS-CIMB Research | https://www.cgs-cimb.com 2021-08-05

SGX Stock Analyst Report ADD MAINTAIN ADD 1.62 UP 1.570