On 1 August 2023, Frasers Logistics & Commercial Trust (“FLCT”) have announced their third quarter business update for FY2023. There is no DPU update this quarter, and the other metrics have not changed significantly. Overall FLCT remained well positioned in the high interest rate environment.
For these few months, it would seem that the Australian Dollar (“AUD”) and Singapore Dollar (“SGD”) relationship have stabilised. Therefore it is unlikely to be a high risk, though the full financial year results that will be released next quarter might still show an impact of a weakening AUD due to the financial performance from the earlier quarters.
Website: General Announcement::Business Updates For The Third Quarter Ended 30 June 2023
Background
FLCT is a real estate investment trust (“REIT”) with a portfolio comprising logistic, industrial and commercial properties diversified across five developed countries – Australia, Germany, Singapore, the United Kingdom (“UK”) and the Netherlands.
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”)
| Metrics | Current | Previous |
|---|---|---|
| Distribution Per Unit | No Info | -8.6% |
Based on the announcement on 1 August 2023, DPU was not included in the business update for the third quarter of 2023.
As at 31 March 2023, the metric was Unfavorable as the DPU have decreased due to organic reasons and likely to continue for the next few quarters.
Occupancy
| Metrics | Current | Previous |
|---|---|---|
| Occupancy | 96.2% | 95.9% |
Occupancy rate as at 30 June 2023 stands at a total of 96.2%, unchanged from the end of the previous quarter. This is contributed by 100% for the logistics and industrial assets and 90.6% for their commercial assets.
This metric is Favorable as the overall is above my expected healthy occupancy rate of 95%. Investors should continue to monitor for the commercial assets.
Gearing ratio
| Metrics | Current | Previous |
|---|---|---|
| Gearing Ratio | 28.6% | 27.8% |
Gearing ratio stands at 28.6% as at 30 June 2023. This to me is Favorable, as it is 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
| Metrics | Current | Previous |
|---|---|---|
| Interest Coverage | 8.0x | 8.4x |
The interest coverage stands at 8.0 times at 30 June 2023. While it continues to be a downtrend, this metric is still Favorable in my opinion. The high interest coverage is attributable to their low cost of borrowings of 2.0% and low gearing ratio. They are well positioned to handle the current interest rate environment, as the Federal Reserve on 25 August 2023 have announced that they may need to raise interest rates further to cool the still-too-high inflation, despite having increased the interest rates to a range between 5.00% and 5.25% on 26 July 2023, the highest level in 22 years.
Website: Fed’s Powell: higher rates may be needed, will move ‘carefully’
As the interest rate may potentially increase further, FLCT may be subjected to significant change in their cost of debt in the near future. In their presentation they have mentioned that 76.2% of their interest rate have been hedged. Furthermore a portion of their debt is also on fixed rates.
The sensitivity analysis using the information as at 30 June 2023:
| Description | Amount (SGD’000) |
|---|---|
| Total Debt | $2,061,000 |
| Debt Not Hedged (%) | 24.6% |
| Debt at Floating Rate Exposed | $507,006 |
| Distributable Income FY2022 | $281,753 |
Interest rate sensitivity analysis as below:
| Change in Interest Rates | Decrease in Distributable Income (SGD’000) | Change as % of FY2022 Distribution |
|---|---|---|
| + 50 bps | -$2,535 | -0.9% |
| + 100 bps | -$5,070 | -1.8% |
| + 150 bps | -$7,605 | -2.7% |
| + 200 bps | -$10,140 | -3.6% |
| + 250 bps | -$12,675 | -4.5% |
| + 300 bps | -$15,210 | -5.4% |
Do note the above is my estimation which may be different from management’s estimation. Nonetheless, if the interest rates were to increase by the basis points above, FLCT may experience a fall in DPU accordingly.
Debt maturity profile
| Metrics | Current | Previous |
|---|---|---|
| Debt Maturity Profile | 2.2 years | 2.4 years |
Weighted average term to maturity of their debt stands unchanged at 2.2 years as at 30 June 2023. This is Favorable and it allows them sufficient time to refinance their debts as they fall due.
Price to Book Ratio
| Metrics | Current | Previous |
|---|---|---|
| Price to Book Ratio | 0.90 | 0.98 |
Based on the announcement on 1 August 2023, net asset value was not included in the business update for the third quarter of 2023.
The Price to Book (“P/B”) ratio currently stands at 0.90. This is computed using the closing share price of SGD1.14 on 18 September 2023 and the net asset value per share of SGD1.27 as at 31 March 2023.
The P/B ratio is Favorable for a well-managed asset.
Dividend yield
| Year | Yield | Total |
|---|---|---|
| 2023 | 3.09% | SGD 0.035 |
| 2022 | 6.68% | SGD 0.076 |
| 2021 | 6.74% | SGD 0.077 |
| 2020 | 6.25% | SGD 0.071 |
| 2019 | 6.14% | SGD 0.070 |
| 2018 | 6.31% | SGD 0.072 |
There is no distribution for the quarter ending 30 June 2023 and thus my expected dividend payout for calendar year remains unchanged based on an extrapolated of the current 2023 dividend. With a dividend payout for SGD0.035 per share for the first half of 2023, the expected total dividend for 2023 will be SGD0.070 per share.
With a closing share price of SGD1.14 as at 18 September 2023 and expected dividend payout of SGD0.070 for the full calendar year 2023, this translates to a dividend yield of 6.14%. For my benchmark, a general reasonable range would be around an average of 5.5% to 6.5% in the current environment, and FLCT have been fairly consistent throughout the years.
Website: Reasonable Dividend Yield 2023Q3
FLCT usually trades requiring a higher dividend yield. Therefore if using dividend yield of 6.5% as a benchmark, based on the dividend of SGD0.070 there is potential for FLCT to see its share price drop by another 5.5% to SGD1.08. Investors will thus need to be mentally prepared that the share price might further fall.
| Yield | Share Price | Downside |
|---|---|---|
| Current (6.14%) | 1.14 | – |
| 6.50% | 1.08 | -5.5% |
| 7.50% | 0.93 | -18.1% |
| 8.50% | 0.82 | -27.8% |
The dividend yield of 6.14% is Neutral.
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.
The high quality and diverse tenant base provides resilience to the FLCT portfolio across challenging events. The top-10 tenants accounted for only 17.6% and 17.3% of GRI contribution for the logistics & industrial tenants and commercial tenants respectively with no single tenant accounting for more than 4.8% during the period. This provides income diversity to the portfolio.
Summary
| Metrics | Financials | Rating |
|---|---|---|
| Distribution Per Unit | No Info | Unfavorable |
| Occupancy | 96.2% | Favorable |
| Gearing Ratio | 28.6% | Favorable |
| Interest Coverage | 8.0x | Favorable |
| Debt Maturity Profile | 2.2 years | Favorable |
| Price to Book Ratio | 0.90 | Favorable |
| Overall | | Favorable |
Overall, for this quarter the metrics indicate that it is favorable to invest in FLCT. Although there may be potential for further share price decline due to interest rate increase, this is a good stock that is poised for growth, and is currently one of the cheapest large cap logistic REITs in SGX. Investors should therefore take note and assess their risk profile.
Disclaimer: Not financial advice. All data and information provided on this site is for informational purposes only.
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