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Frasers Logistics & Commercial Trust (FLCT) (specifically, FLCT Treasury Pte. Ltd.) plans to issue new SGD 5y senior unsecured bonds at an initial price guidance of 4.10% for accredited and institutional investors only. The bonds will be guaranteed by Perpetual (Asia) Limited in its capacity as trustee of FLCT. The bonds will also come with a make-whole call option until the maturity date.
The guarantor is rated BBB+ (Stable) by S&P, while the new issue is expected to be rated BBB+ by S&P as well. Proceeds from this issuance will be used for the refinancing of existing borrowings, financing, or refinancing of acquisitions (including but not limited to the proposed acquisition of 89.9% equity interests in property-owning companies which hold four logistics properties located in Germany as announced on 15 March 2024).
About the proposed acquisition
(All dollar values in SGD, and all growth rates are on a year-on-year (YoY) basis unless otherwise stated.)
FLCT recently shared details on the logistics properties in Germany which have a total gross lettable area of 72,422 square metres and are fully leased with a long weighted average lease expiry (WALE) of 6.1 years.
The agreed property purchase price (based on a 100% interest and not the proposed 89.9% interest) for the New Properties is approximately €129.5 million (approximately $188.9 million), representing a discount of approximately 5.3% to the appraised value of the New Properties by Colliers and a discount of approximately 1.1% to the appraised value of the New Properties by CBRE (as of 1 February 2024). The estimated total cost of the acquisition is approximately $175.3m, including the estimated consideration (based on an 89.9% interest) of €118.7 million (approximately $173.1 million).
Following this acquisition, FLCT’s overall WALE is expected to be maintained at 4.4 years, while FLCT portfolio occupancy is expected to increase to 95.9%. FLCT’s Logistics & Industrial portfolio (L&I) is expected to maintain its occupancy rate of 100.0%.
The company has shared that the acquisition will be funded by external debt financing, which likely refers to this issuance given that the proposed issuance size is capped at $175m, similar to the estimated consideration of this acquisition.
Highlights
(Note: FLCT’s financial year ends in September each year. This article will refer to FY23 and 1Q24 data depending on data availability, which will refer to periods ending in September 2023 and December 2023 respectively.)
In FY23, FLCT’s revenues fell by -$29m (-6.5%) to $421m. Coupled with slightly higher property operating expenses (+4.4%), net property income also fell by -$34m (-9.7%) to $315m. Net income fell by a similar -$32m (-12.3%) to $230m, with the slight increase in net finance costs mitigated by lower management fees.
In 1Q24, FLCT reported strong portfolio rental reversions of +18.2% on an average-vs-average basis (i.e. calculated using the midpoint gross rent of each lease including step-ups and incentives). Its overall portfolio occupancy rate also remained high at 95.8% with full occupancy on its L&I portfolio (FY23: 96% overall portfolio occupancy).
In 1Q24, FLCT also reported an aggregate leverage of 30.7% (FY23: 30.2%) and an interest coverage ratio of 6.2x (FY23: 7.1x). The Group also claimed to be the ‘lowest geared among the top 10 largest S-REITs by market capitalisation’, with a significant debt headroom of $1.1b to reach an aggregate leverage of 40%. While FLCT does have significant maturities coming in the coming three fiscal years (FY24-FY26), it has expressed optimism in managing them as they have credit facilities in place or available for over half of the debt maturing in FY24. As a whole, we think that FLCT continues to have a strong credit profile, and agree with its assessment that its leverage is generally lower (better) than many of its comparable REIT peers.
Thoughts on new issue
The new issue’s IPG of 4.10% appears to be higher than the FLCT’s other outstanding bond maturing in July 2028 (FLTSP 2.180% 26Jul2028 Corp (SGD)), yielding just over 3.7%. Nonetheless, we note that the final price guidance (FPG) is likely to come in lower than the IPG, reducing the relative yield pickup of this new issue compared to the existing bond.
Considering the likely lower FPG compared to the given 4.10% IPG, we think that this bond appears fairly priced. We think this bond is best suited for investors looking for a relatively stable issuer like FLCT, and the new issue appears to be a decent alternative to the existing July 2028 bonds for investors looking for slightly higher coupons.
Table 1: Comparison against peers
| Bond Name | Call / Maturity Date (Years to Call / Maturity) |
Ask Price | Yield to Call / Maturity (%) |
| FLCT's new 2029 bonds* | 26 Mar 2029 (5.0) |
100.000* | 4.10%* |
| FLTSP 2.180% 26Jul2028 Corp (SGD) |
26 Jul 2028 (4.4) |
93.825 | 3.73% |
| Source: Bloomberg, Bondsupermart, iFAST
compilations. Data as of 18 Mar 2024. *Not yet issued, yield is based on initial price guidance. |
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Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.
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