On 2 November 2023, Frasers Logistics & Commercial Trust (“FLCT”) have announced their full year result for FY2023. DPU continues to decrease as net property income has fallen as well, mainly due to the exchange rate movements.
Noted there was also a net fair value loss arising from revaluation of the Group’s investment properties based on valuations performed by independent valuers as at 30 September 2023. Whilst this has no DPU impact, it has caused gearing to increase. FLCT gearing is not high to begin with as compared to other REITs. However is a good example of potential breaches should it occur.
Website: Financial Statements And Related Announcement::Full Yearly Results
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 | -7.6% | No Info |
DPU has decreased by 7.6% for FY2023 to SGD0.0.352 per share from SGD0.0377 per share in the previous financial year. The decrease is noted to be lower revenue and adjusted net property income due to the weaker exchange rates, divestment of Cross Street Exchange in 1H2022, lower other revenue (mainly surrender fee income) and lower average occupancies at Farnborough Business Park, Maxis Business Park and 357 Collins Street.
Property operating expenses were higher due mainly to higher energy and utility expenses. Finance costs have also increased which further eroded the DPU. The metric is Unfavorable.
Occupancy
| Metrics | Current | Previous |
|---|---|---|
| Occupancy | 96.0% | 96.2% |
Occupancy rate as at 30 September 2023 stands at a total of 96.0%, unchanged from the end of the previous quarter. This is contributed by 100% for the logistics and industrial assets and 89.9% 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 | 30.2% | 28.6% |
Gearing ratio stands at 30.2% as at 30 September 2023. The increase was mainly due to a fall in investment properties valuation and not an increase in borrowings. For now, 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 | 7.1x | 8.0x |
The interest coverage stands at 7.1 times at 30 September 2023. This metric is still Favorable in my opinion. The high interest coverage is attributable to their low cost of borrowings of 2.2% and low gearing ratio. This will likely remain favorable as the Federal Reserve on 13 December 2023 held its key interest rate steady for the third straight time and set the table for multiple cuts to come in 2024 and beyond. The interest rates are therefore maintained at a range between 5.25% and 5.50%, which was increased on 26 July 2023, the highest level in 22 years.
Website: Fed holds rates steady, indicates three cuts coming in 2024
In the event that interest rate should 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 77.2% their debt is on fixed rates.
The sensitivity analysis using the information as at 30 September 2023:
| Description | Amount (SGD’000) |
|---|---|
| Total Debt | $2,156,000 |
| Debt Not Hedged (%) | 22.8% |
| Debt at Floating Rate Exposed | $491,568 |
| Distributable Income FY2023 | $262,339 |
Interest rate sensitivity analysis as below:
| Change in Interest Rates | Decrease in Distributable Income (SGD’000) | Change as % of FY2023 Distribution |
|---|---|---|
| + 50 bps | -$2,458 | -0.9% |
| + 100 bps | -$4,916 | -1.9% |
| + 150 bps | -$7,374 | -2.8% |
| + 200 bps | -$9,831 | -3.7% |
| + 250 bps | -$12,289 | -4.7% |
| + 300 bps | -$14,747 | -5.6% |
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 | 2.2 years |
Weighted average term to maturity of their debt stands unchanged at 2.2 years as at 30 September 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 | 0.97 | 0.90 |
The Price to Book (“P/B”) ratio saw an increase to 0.97 due to the fall in net asset value as a result from a fall in valuation of the investment properties. This is computed using the closing share price of SGD1.13 on 22 December 2023 and the net asset value per share of SGD1.17 as at 30 September 2023.
The P/B ratio is Favorable for a well-managed asset.
Dividend yield
| Year | Yield | Total |
|---|---|---|
| 2023 | 6.23% | SGD 0.070 |
| 2022 | 6.74% | SGD 0.076 |
| 2021 | 6.80% | SGD 0.077 |
| 2020 | 6.30% | SGD 0.071 |
| 2019 | 6.19% | SGD 0.070 |
| 2018 | 6.36% | SGD 0.072 |
With a closing share price of SGD1.13 as at 22 December 2023 and expected dividend payout of SGD0.070 for the full calendar year 2023, this translates to a dividend yield of 6.23%. For my benchmark, a general reasonable range would be around an average of 6.0% to 7.0% in the current environment, and FLCT have been fairly consistent throughout the years.
Website: Reasonable Dividend Yield 2023Q4
FLCT usually trades requiring a higher dividend yield. However, with long term interest rates continuing to decrease, the required rate of return may not be as high as before. The February 2024 Singapore Savings Bond 10 year average yield is on track to be around 2.83%.
Website: Singapore Savings Bond – February 2024 – Expected 10 Year Average Yield – 2.83%
The dividend yield of 6.23% is Favorable.
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 | -7.6% | Unfavorable |
| Occupancy | 96.0% | Favorable |
| Gearing Ratio | 30.2% | Favorable |
| Interest Coverage | 7.1x | Favorable |
| Debt Maturity Profile | 2.2 years | Favorable |
| Price to Book Ratio | 0.97 | Favorable |
| Overall | | Favorable |
Overall, the fundamentals of FLCT have continued to remain stable as compared to the previous quarter. The fall in DPU is not unexpected, given the exchange rate trend over the last few months. 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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Website: Frasers Logistics and Commercial Trust (SGX: BUOU): 2023 Third Quarter Business Update
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