Frasers Logistics & Commercial Trust (“FLCT”) is a real estate investment trust (“REIT”) with a portfolio comprising 100 industrial and commercial properties, worth approximately $6.2 billion, diversified across five developed countries – Australia, Germany, Singapore, the United Kingdom (“UK”) and the Netherlands as at 30 September 2020. FLCT was listed on the Mainboard of Singapore Exchange Securities Trading Limited (“SGX-ST”) on 20 June 2016 as Frasers Logistics & Industrial Trust (“FLT”) and was subsequently renamed FLCT on 29 April 2020 following the completion of a merger with Frasers Commercial Trust (“FCOT”).
FLCT’s investment strategy is to invest globally in a diversified portfolio of income-producing properties used predominantly for logistics or industrial purposes located globally, or commercial purposes (comprising primarily central business district (“CBD”) office space) or business park purposes (comprising primarily non-CBD office space and/or research and development space) located in the Asia-Pacific region or in Europe (including the UK).
The breakdown of the portfolio for FCLT are as follows:
FLCT is managed by Frasers Logistics & Commercial Asset Management Pte. Ltd. (the “REIT Manager” or the “Manager”), a wholly-owned subsidiary of FLCT’s sponsor – Frasers Property Limited (“Frasers Property”, “FPL” or the “Sponsor”, and together with its subsidiaries, the “Group”).
GRESB SUSTAINABILITY
FLCT was recognised as an ‘Industrial – Global Listed Sector Leader’ in the Global Real Estate Sustainability Benchmark (“GRESB”) 2020 Real Estate Assessment for the third consecutive year.
This is essential as by being recognised as sustainable, it allows FLCT to tap onto green loans. For instance, in 1Q2020 FCOT had obtained and it has a price reduction feature with interest cost savings from the second year onwards, subject to FCOT maintaining a GRESB rating of not lower than four stars.
Green loans tend to have lower interest rates, and will be beneficial to the REIT in lowering their financing costs.
Website: Frasers Commercial Trust obtains S$100m sustainability-linked loan
Dividend yield
FLCT dividend have been fairly consistent throughout the years.
At 8 January 2021, with a closing share price of SGD1.46 and dividend payout of SGD0.710, this translates to a dividend yield of 4.86%.
The dividend yield is reasonable, and is attractive for those looking to add a dividend counter.
Key Metrics
Improving Distribution Per Unit (“DPU”)
FLCT have been able to maintain their distributable income over the last few years.
As FLCT is operating in an industrial and commercial industry, these assets tend to be more resilient to the direct impact of Covid-19 relative to the retail industry. However, the DPU is only reasonable as while it is stable, it has not been improving historical.
Occupancy
Occupancy rate as at 30 September 2020 stands at 100% for the logistics and industrial assets and 94.3% for their commercial assets. This is, on average, above my expected healthy occupancy rate of 95% and FLCT have been able to fully utilise their assets.
Gearing ratio
Gearing ratio stands at 37.4% as at 30 September 2020. This to me is considered quite unfavorable although still healthy. While it is still a distance away from the recent MAS raised limit of 50%, it suggests a possible rights issue should they decide to take an aggressive stance to expand in the near future.
Interest coverage
The interest coverage for the trailing 12 months stands at 6.4 times. This is favorable in my opinion and as the general interest rates are hinted to continue to stay low for an extended period of time, I am expecting this indicator to stay favorable in the long run.
Debt maturity profile
Weighted average term to maturity of their debt stands at 3.0 years as at 30 September 2020. This is favorable and it allows them sufficient time to refinance their debts as they fall due.
Price to Book Ratio
The Price to Book (“P/B”) ratio currently stands at 1.327. This is computed using the closing share price of SGD1.46 on 8 January 2021 and the net asset value per share of SGD1.10 as at 30 September 2020.
The P/B ratio is favorable for a well managed asset.
Additional Metrics
Tenant Concentration
FLCT has an enlarged portfolio covering logistics and industrial properties, CBD commercial assets and office and business parks, FLCT has government related entities, well-established multinationals, conglomerates and publicly listed companies among its 332 tenants as at 30 September 2020.
The high quality and diverse tenant base provides resilience to the FLCT portfolio across challenging events, as evidenced during the ongoing COVID-19 pandemic. The top-10 tenants accounted for only 23.6% of FLCT’s portfolio with no single tenant accounting for more than 4.7% during the period, providing income diversity to the portfolio.
This is favorable as without a significant tenant concentration, FLCT is not reliant on a single tenant for income.
Key things to note
Commercial Portfolio
Covid-19 has changed the working environment into one with flexible working locations as companies adopt a work-from-home scheme if possible. This directly reduces the demand for office spaces which in turn is expected to have a downward pressure on the commercial properties owned by FLCT.
While this impact is not expected to be felt in the short-term, we should be mindful of the risks that may present itself as leases start to expire and tenants negotiate for new rental agreement terms. The portfolio lease expiry profile is presented as below:
Summary
Given the current uncertainty in the market, I am still expecting some headwinds resulting in potential decline in share prices. Nonetheless, this is a good stock that is poised for growth, and is currently the cheapest large cap logistic REIT. With the rise of e-commerce, there is an increasing need for logistic properties. Furthermore, while commercial properties are expected to face lowered demand with work-from-home schemes, the commercial properties are unlikely to be affected in the short term.
Thus I believe that the current share price of SGD1.46 to be Under Valued. The expected minimum share price support will be at a Price-to-book ratio of 1.5 times. Given the net book value per share of SGD1.10, translates to an reasonable target price of SGD1.65 per share, an upside from the current share price.
