FLCT debt management, expansion to stay prudent in next 2 years: S&P

Credit rating upgrade unlikely in the next 12 to 24 months.

S&P Global Ratings expects Singapore-listed Frasers Logistics & Commercial Trust (FLCT) to remain prudent in managing its financial leverage and limit its debt-funded acquisitions in the next one to two years.

The credit rating agency said in a note on Thursday that FLCT has displayed strong funding access and diversity, underscoring the REIT’s ability to manage upcoming maturities and mitigate refinancing risks. This is especially crucial given the trust’s short debt maturity profile, with an average of two years as of 31 March.

Despite this, S&P cautioned that the REIT has limited wiggle room to boost growth through debt-funded acquisitions, with its leverage already being pushed higher by rising interest rates, currency volatility and the commercial sector.

“We expect FLCT to maintain a prudent approach to expansion, such that its FFO-to-debt ratio remains sustainably above 9% and EBITDA-to-interest ratio stays above 4x,” the credit rater said.

“Timely divestments in the commercial segment can help the REIT manage the leverage effects of further acquisitions. This is consistent with FLCT's strategy of increasing its L&I (logistics and industrial) exposure,” it added.

S&P affirmed its 'BBB+' long-term issuer credit rating on FLCT and maintained a stable outlook. Downside risks for the rating include lower-than-expected earnings due to persistent macro headwinds.

Aggressive debt-funded growth and any deterioration in the portfolio also poses a risk to the REIT’s credit rating, it said.

S&P said they are unlikely to raise the trust’s rating in the next 12 to 24 months, as this will force FLCT to shift to a “conservative financial policy.”

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