SINGAPORE (Jul 14): Frasers Logistics & Commercial Trust (FLCT) is on a “stronger growth trajectory” following its merger in April, with a stable and resilient portfolio, say CGS-CIMB analysts Lock Mun Yee and Eing Kar Mei in a July 13 report. 

“We like FLCT’s visible inorganic growth potential and income resilience backed by a long WALE (weighted average lease expiry),” they note. 

CGS-CIMB is maintaining “add” on the company with a raised target price of $1.43.

“The successful merger of FLT (Frasers Logistics & Industrial Trust) and FCOT (Frasers Commercial Trust) on 29 Apr 2020 resulted in the formation of one of the largest diversified logistics/commercial SREITs, Frasers Logistics & Commercial REIT (FLCT),” note the analysts.

The company now holds the 8th 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 Central Business District (CBD) commercial and office and business parks properties, in addition to industrial and logistics asset class.

“With a wider investment mandate and as the sole logistics/industrial and commercial/business park asset recycling vehicle for its sponsor, FLCT should benefit from its robust expanded pipeline of ROFR assets,” say analysts. 

As of last September, the company’s 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.

The company’s 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/industrial portfolio. By tenant sub-sector mix, 74.8% of the logistics/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 contribution 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 company’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 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.”

As at 12.10pm, units in FLCT are trading 1 cent lower, or 0.81% down, at A$1.22 ($1.18).