Stable performance
? 1HFY9/22 DPU of 3.85 Scts slightly below expectations, at 47.3% of our fullyear forecast
? Robust financial metrics support potential inorganic growth
? Reiterate Add with an unchanged DDM-based TP of S$1.56
1HFY9/22 results highlights
FLCT 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 hoh 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, FLCT 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.