SINGAPORE (June 9): The merger between Frasers Logistics and Industrial Trust and Frasers Commercial Trust has yielded good results, with the merged Frasers Logistics & Commercial Trust (FLCT) being among the top 10 S-REITs, say DBS analysts Dale Lai and Derek Tan.
“We like FLCT for its resilience in income [and] steady organic growth profile of 3.3% CAGR over the next two years,” they elaborate in their June 9 note.
This is “driven by (i) enlarged portfolio through the accretive merger, (ii) contribution from the more than $777 million worth of acquisitions over the past [year] and (iii) annual rental escalations in leases,” they add.
The brokerage is hence maintaining its “buy” call and target price for FLCT at $1.40. This gives the counter a 16% upside from its $1.21 close on Monday.
As its name suggests, FLCT’s portfolio comprises logistics and commercial properties located in Singapore (22%), Australia (48%), Germany (20%), UK and The Netherlands. Of these, office and business parks and CBD Commercial properties account for 41%.
These facilities have a 97.6% occupancy rate and weighted average lease expiry (WALE) of 5.3 years. Collectively, they have a total value of $5.7 billion.
Specifically, its logistics and industrial portfolio have a 100% occupancy level and WALE of over six years.
Meanwhile, its commercial portfolio has a 95% occupancy, and a weighted average lease expiry (WALE) of 4.5 years. The lower occupancy level comes from weaker occupancy levels in Australia (93.7%) in Singapore (95.2%).
Lai and Tan note that the trust’s Singapore-based properties may take a hit from the circuit breaker measures that restricted that operations of non-essential retail and commercial businesses from April 7 and June 1.
However, with retail and ancillary services making up only 2% of FLCT’s revenue, they say the impact may not be so severe.
“The ongoing COVID-19 outbreak is expected to create some weakness in FLCT’s newly consolidated commercial properties. However, the 100% occupancy of FLCT’s logistics portfolio with a long WALE and annual rental escalations will provide buffer and mitigate weaknesses in the rest of the portfolio,” they add.
For now, the duo are excited about FLCT’s pipeline of activities which span across Singapore, Australia and Europe. Collectively, they amount to over $5.0 billion.
A key focus of these projects would be the acquisition of assets to “continue to bulk up and grow [FLCT's] Assets Under Management (AUM) in the medium term,” Lai and Tan point out.
“With expectations for interest rates to remain lower for longer and the tightening in FLCT’s yield, we believe that conditions are conducive for accretive acquisitions to be considered,” they add.
As at 1.10pm, shares of FLCT was up a cent or 0.826% to $1.22.
