Continue to 'add' FLCT as it joins the STI: CGS-CIMB

CGS-CIMB Research analyst Lock Mun Yee has maintained her ‘add’ call for Frasers Logistics & Commercial Trust (FLCT) following the REIT’s inclusion in the Straits Times Index (STI) from April 13.

Her target price of $1.57 also remains unchanged.

“We continue to like FLCT’s visible inorganic growth potential and income resilience, backed by a long weighted average lease expiry (WALE) profile,” she says in an April 9 research note.

Following FLCT’s inclusion in the STI, Lock notes that the REIT will be a constituent of three indices – the FTSE EPRA Nareit Global Real Estate Index, the STI, and the GPR 250 Property Securities Index.

“We believe this will likely boost the trust’s profile and investor visibility. Based on our calculations, we estimate FLCT’s weight in the STI to be c.1.14%, based on share price as at April 8,” she says.

From an operations standpoint, Lock expects continued robust demand for FLCT’s Australian logistics and industrial assets, underpinned by the pick-up in economic activity amid a global recovery. As of end-December 2020, FLCT has 2% and 5.7% of industrial portfolio leases to be renewed in FY2021 and FY2022 ending September respectively, in Australia. 

She cites a Jones Lang Lasalle 4Q2020 update that indicates the Australia industrial market remains stable with national leasing activity climbing on a q-o-q basis as occupier activity picked up in Melbourne, Perth and Sydney. Market rents also picked up slightly y-o-y in Sydney and Melbourne’s Southe East area, while Perth remained stable.

Meanwhile, Lock anticipates FLCT’s Singapore commercial assets to benefit from the easing in workplace restrictions, in particular, the retail component at Cross Street Exchange.

Lock also anticipates FLCT’s earnings to benefit from the stronger Australian dollar and Pound Sterling, which had strengthened against the Singapore dollar by 0.6% and 2.2%  respectively from January to April, and by a quarterly average of approximately 10% and 4.5% respectively from a year ago.

“We estimate FLCT generates 80z% -85% of portfolio revenue from its Australia and Europe assets. To be sure, FLCT adopts a six-monthly rolling hedge policy for its overseas earnings, and the strengthening trend in the Australian dollar and Pound Sterling would likely benefit distribution income, in our view,” she explains.

At at 4.02pm, shares in FLCT are trading flat at $1.47.