Excerpts from CGS CIMB report
Frasers Logistics & Commercial Trust (SGX: BUOU)
- 1HFY9/22 DPU of 3.85 Scts slightly below expectations, at 47.3% of our full year forecast
- Robust financial metrics support potential inorganic growth
- Reiterate Add with an unchanged DDM-based TP of S$1.56
Frasers Logistics & Commercial Trust 1HFY9/22 results highlights
Frasers Logistics & Commercial Trust reported 1HFY9/22 revenue/NPI of S$235.7m/S$183.6m, up 1.7%/2.1% yoy.
The better performance was due to contributions from new acquisitions and a surrender fee received in 1H, partly offset by asset divestments and lower A$ and € exchange rates.
Distributable income rose 9% yoy to S$142.1m due to lower finance costs as well as capital distribution of S$6.4m. 1H DPU of 3.85 Scts (+1.3% yoy) was slightly below our estimate, at 47.3% of our FY22 forecast.
Book NAV grew 6.5% yoy to S$1.32/unit, due mainly to divestment gains from the sale of Cross Street Exchange.
Some near-term occupancy drag
Portfolio occupancy slipped to 96.1% (from 96.9%), dragged down by lower take up at Alexandra Technopark (ATP), Farnborough Business Park (FBP) and Blythe Valley Park (BVP), while its logistics and industrial (L&I) portfolio remains fully occupied.
Management indicated that leasing enquiries have increased, especially at BVP, and remains confident of improving occupancy at the property in the coming quarters.
In 2QFY22, Frasers Logistics & Commercial Trust renewed leases for 35,247 sq m at an average rental reversion of 2.6%, with the L&I renewals at +2.1% average reversion and the commercial portfolio at +2.6%, largely from Singapore and UK leases.
FLCT has another 3.3% of gross rental income expiring in 2HFY22F and another 14.3% in FY23F.
FLCT has commenced the development of Connexion II at Blythe Valley Park in the UK and have committed to a forward-funding acquisition of a prime warehouse in West Midlands, UK, for £28.3m.
The latter is scheduled to be completed in early 2023F and has been pre-leased to a UK flooring distributor for 15 years.
Strong balance sheet to tap inorganic growth opportunities
Gearing stood at 29.5% as at end-Mar, translating to a debt headroom of c.S$3bn, assuming 50% leverage limit.
This puts FLCT in a strong position to tap inorganic growth including new acquisitions or development opportunities, particularly logistics/industrial or suburban office assets.
As the trust continues to evaluate new opportunities, management indicated it could provide some top-up from divestment gains during the income vacuum period.
In terms of impact from rising interest rates, management indicated that with 82.6% of the trust’s debt in fixed rates, every 1% pt rise in its average funding cost (1.6% at end1H), could affect DPU by 1-2%.
Reiterate Add rating. We keep our FY22-24F DPU estimates and S$1.56 DDM-based TP. We have not assumed any pre-emptive new acquisitions in our estimates.
We like FLCT’s visible inorganic growth potential and income resilience. Potential re-rating catalyst: accretive new acquisitions. Downside risks: inability to make accretive purchases and slow global macro outlook.