On 30 January 2024, Frasers Logistics & Commercial Trust (“FLCT”) have announced their first quarter business update for FY2024. They have remained stable, though the debt maturity profile has now decreased to only two years left. It is possible that they may need to renew their borrowings in the current higher interest rate environment, which may in turn affect the DPU moving forward.
Take note as well on 15 March 2024, they have announced a proposed acquisition of interests if four logistics properties in Germany. Though no pro forma DPU was provided, the proposed acquisitions are expected to be DPU and NAV per unit accretive. Investors will need to take note.
Website: General Announcement::Business Updates For The First Quarter Ended 31 December 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 | -7.6% |
Based on the announcement on 30 January 2024, DPU was not included in the business update for the first quarter of 2024.
The metric was Unfavorable as of 30 September 2023 as DPU has decreased by 7.6% for FY2023 to SGD0.0.352 per share from SGD0.0377 per share in the previous financial year.
Occupancy
| Metrics | Current | Previous |
|---|---|---|
| Occupancy | 95.8% | 96.0% |
Occupancy rate as of 31 December 2023 decreased slightly to 95.8%. This is contributed by 100% for the logistics and industrial assets and 89.4% 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 | 30.7% | 30.2% |
Gearing ratio increased slightly to 30.7% as of 31 December 2023. This to me is Favorable, as it is a distance away from the MAS limit of 50% and 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 | 6.2x | 7.1x |
The interest coverage stands at 6.2 times at 31 December 2023. This metric is Favorable. The high interest coverage is attributable to their low cost of borrowings of 2.4% and low gearing ratio. This will provide a larger buffer from interest rate hikes, as the Federal Reserve on 13 February 2024 have indicated that interest rates may need to stay high for a longer period as they are waiting for more evidence of easing price pressures before they cut interest rates, after a government report on Tuesday showed consumer inflation stayed elevated last month. This was after increasing the interest rates to a range between 5.25% and 5.50% on 26 July 2023.
Website: Fed seen waiting longer to cut rates as inflation stays elevated
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 76.8% their debt is on fixed rates. The sensitivity analysis using the information as of 31 December 2023:
| Description | Amount (SGD’000) |
|---|---|
| Total Debt | $2,099,000 |
| Debt Not Hedged (%) | 23.2% |
| Debt at Floating Rate Exposed | $486,968 |
| 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 | -$2,435 | -0.9% |
| + 100 bps | -$4,870 | -1.9% |
| + 150 bps | -$7,305 | -2.8% |
| + 200 bps | -$9,739 | -3.7% |
| + 250 bps | -$12,174 | -4.6% |
| + 300 bps | -$14,609 | -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 | 2.0 years | 2.2 years |
Weighted average term to maturity of their debt has decreased to 2.0 years as of 31 December 2023. This is Neutral. This indicates that at least half of their debt needs to be renewed in soon and at the current high interest rate environment, which may translate to higher cost of borrowings moving forward.
Price to Book Ratio
| Metrics | Current | Previous |
|---|---|---|
| Price to Book Ratio | 0.87 | 0.97 |
Based on the announcement on 30 January 2024, net asset value was not included in the business update for the first quarter of 2024.
The Price to Book (“P/B”) ratio stands at 0.87. This is computed using the closing share price of SGD1.02 per share on 15 March 2024 and the net asset value per share of SGD1.17 as of 30 September 2023. The decrease was due to a significant decrease in share price from the previous article, mainly due to dividend already paid out. The P/B ratio is Favorable.
Dividend yield
| Year | Yield | Total |
|---|---|---|
| 2023 | 6.90% | SGD 0.070 |
| 2022 | 7.47% | SGD 0.076 |
| 2021 | 7.53% | SGD 0.077 |
| 2020 | 6.98% | SGD 0.071 |
| 2019 | 6.86% | SGD 0.070 |
| 2018 | 7.06% | SGD 0.072 |
With a closing share price of SGD1.02 per share as of 15 March 2024 and dividend payout of SGD0.070 for the full calendar year 2023, this translates to a dividend yield of 6.90%. For my benchmark, a general reasonable range would be around an average of 5.25% to 6.25%, and FLCT have been fairly consistent throughout the years. The dividend yield is Favorable.
Website: Reasonable Dividend Yield 2024Q1
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 provide resilience to the FLCT portfolio across challenging events. The top-10 tenants accounted for only 17.3% and 17.8% 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 | 95.8% | Favorable |
| Gearing Ratio | 30.7% | Favorable |
| Interest Coverage | 6.2x | Favorable |
| Debt Maturity Profile | 2.0 years | Neutral |
| Price to Book Ratio | 0.87 | Favorable |
| Overall | | Favorable |
Overall, the fundamentals of FLCT have relatively remained unchanged with this business update. A key concern investors should have is that their debt maturity profile has decreased to 2 years. FLCT may have been able to keep their interest coverage high previously as they did not renew their existing borrowings in the current higher interest rate environment. This may change over the next few quarters and investors will need to take note.
Disclaimer: Not financial advice. All data and information provided on this site is for informational purposes only.
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