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Well positioned for inorganic growth

  • FY21 DPU increased c.8% y-o-y, underscoring its portfolio strength and accretive acquisition during the year  
  • Significant cap rate compressions as anticipated; revaluation gains of c.S$604m
  • Development and AEI projects to be the next key growth driver 
  • Maintain BUY with TP of S$1.85

Investment Thesis

Cheapest large-cap logistics REIT in Singapore. With a TP of S$1.85, FLCT’s target yields are 4.3% for FY22F, which is fair given its substantially freehold portfolio. In our view, there is room for further compression if we compare FLCT to its large-cap peers that are trading at target yields of 3.5-4.0%. 
 
ROFR pipeline from Sponsor is worth more than S$5.0bn. Since its merger with FCOT, the REIT has acquired more than S$600m worth of assets from its Sponsor. Despite this, FLCT still has the largest ROFR pipeline valued at more than S$5.0bn, which could double its portfolio, providing a visibility like no other. Its low gearing currently also provides it with ample debt headroom to fund acquisitions.

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Development and AEI projects to drive next leg of growth. 

Having acquired more than S$562m of assets in FY21, we believe that development and AEI projects will complement further acquisitions plans in FY22. The 3-hectare development land is expected to be the most immediate project, with other development opportunities coming from its Sponsor’s pipeline and third parties.

Valuation:

Our DCF-based TP is maintained at S$1.85. We have not assumed any further acquisitions in our projections.

Where we differ:

Exploring development projects. With a significantly larger portfolio (c.S$7.3bn), FLCT has the capacity to undertake development projects or redevelopment of older assets that could drive upside to earnings in the longer term.

Key Risks to Our View:

Currency risk. As the Manager pays its distributions in SGD, the REIT is exposed to currency fluctuations in AUD, EUR, and GBP. The Manager attempts to reduce foreign currency fluctuations by hedging distributions regularly.