FRASERS LOGISTICS & COMMERCIAL TRUST (SGX:BUOU)
Frasers Logistics & Commercial Trust - Resilient Operations But FX To Weigh
- Frasers Logistics & Commercial Trust (FLCT)'s 3QFY22 portfolio rental reversions of +9.9% (average to average).
- No distribution (DPU) declared but weakening AUD, EUR and GBP against S$ to impact foreign-sourced income.
- Aggregate leverage declined to 29.2%; capital redeployment remains key.
FLCT's 3QFY22 business updates exhibited continued resilient operating metrics
- Frasers Logistics & Commercial Trust (SGX:BUOU) provided a business update for 3QFY22 (1 Apr 2022 to 30 Jun 2022).
- Portfolio occupancy increased 0.4ppt q-o-q to 96.5%. Its logistics and industrial (L&I) portfolio remained fully occupied, while occupancy for its commercial properties improved from 90.5% (as at 31 Mar 2022) to 91.3%. This was in turn driven by higher occupancy at Alexandra Technopark (+0.7 ppt q-o-q to 93.2%) and Farnborough Business Park (+3.6 ppt q-o-q to 82.0%).
- None of its other commercial properties recorded a decline in occupancy rates.
Overall positive rental reversions of 9.9% (based on average lease rental rates)
- 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 were robust +9.9% in 3QFY22 (2QFY22: +2.6%), and this can be broken down into +10.1% for its L&I portfolio, and +8.5% for its commercial assets.
- If we look at rental reversions from an incoming signing gross rent to expiring gross rent basis, this would be flat for the portfolio given the effects of annual rental step-ups over the course of the lease tenure.
- Rental reversions were boosted by one of its Netherlands assets, whereby rental terms are linked to the consumer price index (CPI). This helped to drive rental reversions of 17.7% (average to average) and 5.0% (incoming rent versus outgoing rent) for the property.
Aggregate leverage dipped to 29.2%; weakening foreign currencies to weigh on 2HFY22 DPU
- Frasers Logistics & Commercial Trust has one of the lowest gearing ratios within the S-REITs sector. Its aggregate leverage dipped 3.9 ppt q-o-q to 29.2% post the divestment of Cross Street Exchange. Its cost of debt was unchanged q-o-q at 1.6%, while 80.6% of its borrowings are on fixed rates, a significant jump of 9.3 ppt q-o-q.
- According to Frasers Logistics & Commercial Trust, every 50 basis points increase in interest rates is estimated to negatively impact its DPU by 0.05 Singapore cents (~0.7% of our FY22 DPU forecast).
- Management has redeployed part of its divestment proceeds with the acquisitions of five properties in Australia and the UK, including one logistics facility which is under construction in the UK and expected to be completed in 2H23. Initial net property income yields are estimated to range between 3.7-5% for these acquisitions. We incorporate the acquisitions in our model, and expect management to remain active on hunting for inorganic growth opportunities.
- It has seen some cap rates expansion in markets which it is focused on, and believes there would be better opportunities ahead. On the flip-side, Frasers Logistics & Commercial Trust's management acknowledged that the depreciation of AUD, EUR and GBP against the S$ has adversely impacted its foreign-sourced income. While we had already highlighted this negative currency impact in our previous report Frasers Logistics & Commercial Trust - OCBC Investment 2022-05-09: Improved Credit Metrics Post-Cross Street Exchange Divestment, we still see the need to lower our EUR and GBP assumptions. We thus lower our FY22 and FY23 DPU forecasts by 0.1% and 1.4%, respectively, and also raise our risk-free rate assumption from 2.5% to 3.25%, although this is partially offset by us ascribing an ESG valuation premium following Frasers Logistics & Commercial Trust’s ESG rating upgrade.
- Consequently, our fair value estimate for Frasers Logistics & Commercial Trust declines from S$1.61 to S$1.57.
- 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.
OCBC Research Team
OCBC Investment Research
|
https://www.iocbc.com/
2022-08-08
SGX Stock
Analyst Report
1.57
DOWN
1.610
