Brokers’ digest

Frasers Logistics & Commercial Trust (FLCT) is on a “stronger growth trajectory” following its merger in April with a stable and resilient portfolio backed by long weighted average lease expiry, say CGS–CIMB analysts Lock Mun Yee and Eing Kar Mei in a July 13 report. They have given FLCT an “add” call and raised the target price to $1.43, from $1.30.

“The successful merger of FLT (Frasers Logistics & Industrial Trust) and FCOT (Frasers Commercial Trust) on April 29 resulted in the formation of one of the largest diversified logistics/commercial SREITs, Frasers Logistics & Commercial REIT (FLCT),” note the analysts, adding that it is now the eighth largest Singapore REIT (S–REIT) by market cap with a capitalisation in excess of $4.1 billion.

Following the merger, FLCT’s investment mandate has also been expanded to include CBD commercial and office and business parks properties, in addition to industrial and logistics asset class. Now, with a wider investment mandate, FLCT should benefit from its robust expanded pipeline of right of first refusal assets, say the analysts.

As of last September, its expanded portfolio of $5.7 billion comprises logistics and industrial properties (59%) and commercial/ business parks assets (41%), spread across Australia, which accounts for 48% of assets under management (AUM), Europe, Singapore and the UK.

Its portfolio remains resilient even during the pandemic situation, with rental collection rate to date remaining high, notes CGS–CIMB. “We attribute this resilience to both tenant quality and trade sector mix.”

At end 2QFY2019–2020, the top 10 tenants comprising major MNCs or its affiliates account for 27.8% of FLCT’s logistics and industrial portfolio. By tenant sub–sector mix, 74.8% of the logistics and industrial portfolio comes from essential services, such as the logistics and consumer sectors.

That said, the impact of the lockdown in Australia and the “circuit breaker” measures in Singapore is likely to hamper the company’s newly consolidated commercial portfolio in the near term, say analysts.

With relief measures such as property tax rebates and rental waivers, however, the impact on the company is likely to be minimal, as retail contributions make up approximately 5% of enlarged portfolio revenue.

“More importantly, the larger and stronger inorganic growth prospects would more than compensate for the near–term slower retail contributions,” say Lock and Eing.

Post–merger, the FLCT’s gearing is expected to rise to about 37%. Blended debt maturity and interest cost could shorten and rise to approximately 2.9 years and 2.3% respectively, say the analysts. “However, we anticipate these changes to be temporary as FCOT had redeemed $159.5 million of its fixed rate notes on July 9.”

“In our view, we think these notes could likely be refinanced at lower than prevailing rates, thanks to the low interest rate regime.”—