Frasers Logistics & Commercial Trust - OCBC Investment 2022-05-09: Improved Credit Metrics Post-Cross Street Exchange Divestment

FRASERS LOGISTICS & COMMERCIAL TRUST (SGX:BUOU)

Frasers Logistics & Commercial Trust - Improved Credit Metrics Post-Cross Street Exchange Divestment

Frasers Logistics & Commercial Trust's 1HFY22 (1H financial year to end-Sep 2022) distribution per unit (DPU) rose 1.3% y-o-y to S$0.0385.
Overall portfolio rental reversions of +2.6% (average to average).
Aggregate leverage to decline to 29.5% from 33.1% (31 Mar 2022) post-Cross Street Exchange sale.

Frasers Logistics & Commercial Trust (SGX:BUOU)’s revenue and adjusted net property income (NPI) grew 1.7% and 3.6% y-o-y to S$235.7m and S$180.1m. DPU rose 1.3% y-o-y to S$0.0385, and this constituted 50.2% of our initial FY22 forecast.
Management provided some comfort on the impact of higher utility costs on its portfolio, mentioning that utility expenses for its logistics properties are based on direct negotiations between its tenants and the utility providers.
For its commercial properties, utility costs are mostly recovered from its tenants via service charges, with the exception of Alexandra Technopark (ATP). However, Frasers Logistics & Commercial Trust had entered into a new electricity contract for Alexandra Technopark in Sep 2021, and thus would be relatively sheltered from the recent surge in electricity tariff rates until it has to enter into a new contract in Sep 2022.

Based on average gross rental of new/renewed leases to average gross rental of expiring leases, Frasers Logistics & Commercial Trust’s overall portfolio rental reversions came in at +2.6% in 2QFY22 (1QFY22: +4.3%), and this can be split into +2.1% for its logistics and industrial (L&I) portfolio, and +2.6% for its commercial assets. If we look at rental reversions from an incoming signing gross rent to expiring gross rent basis, this would be -6.4% for the portfolio given the effects of annual rental step-ups over the course of the lease tenure.
Overall portfolio occupancy inched up 0.2 percentage point (ppt) q-o-q to 96.1%, with its L&I portfolio remaining fully occupied and its commercial portfolio occupancy at 90.5%. Two of its UK business park properties registered weaker occupancy rates (Farnborough Business Park: -8.8 ppt q-o-q to 78.4%; Blythe Valley Park: -2.5 ppt q-o-q to 85.3%). Management acknowledged that decision making on leases by tenants in UK have taken longer-than-expected, but the level of enquiries have picked up given the reopening.

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2022-05-09

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