Frasers Logistics & Commercial Trust (“FLCT”) has been performing well the last few months and their recent Q3 business update have showed that there are stable. This is easily one of the cheaper logistic REITs out in the market, unnoticed by the common masses.
Background
FLCT is a real estate investment trust (“REIT”) with a portfolio comprising 101 industrial and commercial properties, worth approximately SGD6.6 billion, diversified across five developed countries – Australia, Germany, Singapore, the United Kingdom (“UK”) and the Netherlands as at 31 March 2022.
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).
Key Metrics
Distribution Per Unit (“DPU”)
Based on the announcement on 6 May 2022, DPU for 1H2022 grew by 1.3% to SGD0.0385 per share from SGD0.0380 per share in 1H2021. This metric is Favorable as FLCT has been able to grow their DPU via accretive acquisitions, with their revenue having increases by 1.7%.
It is worth noting that FLCT is operating in an industrial and commercial industry, and these assets tend to be more resilient to the direct impact of Covid-19 relative to the retail industry. Thus being able to improve their DPU is something that did not come as a surprise. It adds resilience to an investor’s portfolio.
Occupancy
Occupancy rate as at 31 March 2022 stands at a total of 96.1% and have improved to 96.5% as at 30 June 2022. This is contributed by 100% for the logistics and industrial assets and 90.5% for their commercial assets as at 31 March 2022. Since then, the commercial assets have seen an improvement to 91.3% as at 30 June 2022. This metric is Favorable as it is above my expected healthy occupancy rate of 95%.
However, the commercial property arm is worth a second look, there is While the overall occupancy rate is decent, the fall in occupancy for commercial properties, is a bit concerning, as it was at 91.5% in the prior year as at 30 September 2021. The commercial properties makes up 33.4% of their total portfolio. Investors should take note in the near future should occupancy for commercial properties continue to decrease.
Gearing ratio
Gearing ratio stands at 33.1% as at 31 March 2022 and 29.2% as at 30 June 2022. This to me is Favorable, as it is still a distance away from the MAS limit of 50% and also provides adequate headroom for FLCT to leverage on debt should there be an accretive acquisition in the short term.
Interest coverage
The interest coverage stands at 12.5 times and 12.4 times as at 31 March 2022 and 30 June 2022 respectively. This is Favorable in my opinion but similar to the other REITs, there is a need to keep an eye out for increasing interest rates with recent fears of inflation resulted in the United States (“US”) playing with the idea of increasing interest rates to combat inflation. While FLCT have no properties in the US, other countries may follow the US if they should increase rates. Something that investors should take note of.
Debt maturity profile
Weighted average term to maturity of their debt stands at 2.9 years as at 31 March 2022 and 3.0 years as at 30 June 2022. 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 1.11. This is computed using the closing share price of SGD1.46 on 16 August 2022 and the net asset value per share of SGD1.32 as at 31 March 2022. The P/B ratio is Favorable for a well managed asset.
Dividend yield
At 16 August 2022, with a closing share price of SGD1.46 and dividend payout of SGD0.077 for the full calendar year 2021, this translates to a dividend yield of 5.26%, an increase from the previous calendar year.
The dividend yield is Favorable. For my REIT’s benchmark, a general reasonable range would be around an average of 4.5%, and FLCT have been fairly consistent throughout the years.
Other metrics
Tenant profile
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 tenants as at 31 March 2022.
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 25.5% of FLCT’s portfolio with no single tenant accounting for more than 5.2% during the period, providing income diversity to the portfolio.
Key Things to Note
Commercial Properties
Since before merger in 2020, the commercial properties of FCOT have been thought to be of lower grade within the commercial industry as compared to their logistics arm. This has been further exacerbated by Covid-19, where there are visible shifts towards work-from-home and scaling back on office rentals. The low occupancy rate of the commercial segment is also a good indicator of what may come.
It was noted that the weightage of commercial properties over the total portfolio have decreased during the last few months. It may be worth seeing if this is the continued direction FLCT will take.
Summary
Overall, the metrics indicate that it is favorable to invest in FLCT, and it is currently trading at a good safety of margin. This is a good stock that is poised for growth, and is currently one of the cheapest large cap logistic REITs in SGX. With the continued reliance on e-commerce, there is still demand for logistic properties which is Covid-19 proof. 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.
