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On a solid footing

  • 2H/FY21 DPU were slightly below our expectation, but within market’s.
  • FY21 saw strong portfolio value uplift; operating metrics stayed healthy.
  • Reiterate Add, with an unchanged DDM-based TP of S$1.62

2H/FY21 results highlights

Frasers Logistics & Commercial Trust (FLCT) reported 2H21 gross revenue/distributable income of S$237.6m/S$139.6m (+11.4%/+11.8% yoy), thanks to contributions from new acquisitions and a capital distribution of S$3.3m, partly offset by asset divestments and rental waivers to tenants. 2H/FY21 DPU of 3.88/7.68 Scts was up 6.3%/7.9% yoy, slightly below at 48.4%/95.9% of our FY21F forecast. Portfolio occupancy averaged 96.2% at end-FY21, with the commercial segment slipping qoq to 91.5%, dragged by Alexandra Technopark and Farnborough Business Park (FBP), while the industrial/logistics properties remained fully taken up. FLCT renewed/leased c.152k sq m of space in 4QFY9/21, at an average rental reversion of -2.3% (FY21: -1.7%).

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Slight qoq drag from commercial occupancy

Australia continued to post negative reversions of 4.9% in 4QFY21 as step-up expansion outpaced market rental growth. This was partly offset by a +6.3% reversion in Europe. Meanwhile, rental reversions within the commercial segment averaged +0.4% in
4QFY21, with UK enjoying a 21.6% uplift, while Australia saw negative reversion of 31.4% on renewal of a retail lease. FLCT has 8%/16.6% of portfolio leases expiring in FY22F/FY23F. FY22F expiries comprise 11 industrial and 53 commercial leases, mainly from the logistics/industrial spaces in Australia and commercial spaces in Singapore.

Portfolio value uplift translates into a lower gearing of 33.7%

FLCT revalued its portfolio up by 9% at end-FY21, as it benefited from strong cap rate compressions in Australia (-100bp to an average of 4.85%) and Europe (-50bp). Meanwhile, valuations for the commercial portfolio dipped 0.1% yoy, dragged by a decline in UK portfolio value. As at end-FY21, industrial/logistic assets made up c.67% of total portfolio value. Gearing dipped to a healthy 33.7% at end-4QFY21, providing FLCT with significant debt headroom to seek inorganic growth opportunities. Assuming a gearing level of 50%, FLCT has further debt headroom of c.S$2.46bn to tap inorganic growth opportunities. Management flagged that with cap rates tightening, it would also look for redevelopment opportunities (which potentially offer better returns), in addition to acquisition growth, which could come from its sponsor or third parties.

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Reiterate Add rating

We tweak our FY22-23F DPU estimates down by 0.7-0.9% to factor in a lower proportion of management fees in units (70% vs. 95% previously) and the latest results. We roll forward our valuation to FY22F and maintain our DDM-based TP at S$1.62. We continue to like FLCT’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 (1.7% of FLCT’s overall income as at end-4QFY21).