Analysts from CGS-CIMB Research and OCBC Investment Research (OIR) have reiterated their “add” and “buy” calls on Feb 4, following Frasers Logistics & Commercial Trust’s (FLCT) 1Q business update released on Feb 3.
See: Frasers Logistics & Commercial Trust says Covid-19 pandemic as 'no material impact' on portfolio in 1Q business update
CGS-CIMB and OCBC have also upped their target price estimates to $1.57 from $1.50 previously, and $1.62 from $1.59 respectively.
The way they see it, the REIT’s portfolio reflects continued resilience as it reported high portfolio occupancy of 97.2% for the 1QFY2021 ended December. The industrial and logistics portfolio remained fully occupied while the commercial portfolio slipped slightly to 93.6% during the quarter.
The REIT also reported a healthy balance sheet with gearing at 36.2% as at end-December, with interest coverage ratio of 6.5 times.
As part of its long-term growth strategy, FLCT will continue to manage its assets actively.
“We believe, having grown its assets under management (AUM) to a sizeable $6.3 billion at end-Dec 2020 with a diversified spread of industrial/logistics/commercial assets, FLCT is well placed to undertake selective accretive development opportunities,” write CGS-CIMB analysts Lock Mun Yee and Eing Kar Mei.
Lock and Eing have also upped their distribution per unit (DPU) estimates for FY2021-FY2023 by 2.04% to 3.39% to factor in stronger exchange rate assumptions of the Australian dollar (AUD) against the Singapore dollar (SGD) of $1 (compared to 95 cents previously), as well as the British pound against the SGD of $1.78 ($1.75 previously).
“We continue to like FLCT’s visible inorganic growth potential and income resilience, backed by a long weighted average lease expiry (WALE). Potential re-rating catalyst: accretive new acquisitions. Downside risks: drag from retail operations which makes up a small 2.4% of FLCT’s overall income at end-1QFY2021 as well as Aussie dollar and Euro volatility,” say Lock and Eing.
The research team at OCBC has advised investors to look beyond FLCT’s negative headline rental reversion figures.
The decline was driven largely by two leases –an industrial lease renewal in Victoria, Australia, and another commercial lease at Central Park in Perth, Australia – where annual rental escalations have outpaced market rental growth over the years.
Rental reversion was -29.2% as there had been an annual rental step-up of 3.75% since 2010, noted the team.
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The team says its higher fair value estimate has already taken into consideration the divestments of three leasehold industrial properties in Australia on Dec 10, 2020.
Like CGS’s Lock and Eing, they have also upped their SGD per AUD assumption.
To this end, OCBC’s research team has identified stronger-than-expected growth in industrial rents in Australia and Europe, DPU accretive acquisitions, as well as a better-than-expected hedge rate for the AUD and Euro as potential catalysts.
On the flip side, a slowdown in macroeconomic conditions, spike in interest rates, and depreciation of the AUD and Euro against the SGD may pose as investment risks.
As at 11.28am, units in FLCT are trading 3 cents higher or 2.1% up at $1.44.
