Initially listed as Frasers Logistics & Industrial Trust back in 20 June 2016 (at an IPO price of S$0.890), where its portfolio comprised of 51 logistics and industrial properties in Australia, it was later renamed to Frasers Logistics and Commercial Trust (SGX:BUOU), or FLCT for short, after its merger with another Frasers REIT in Frasers Commercial Trust on 29 April 2020.

As at 30 September 2022 (which is the end of the financial year 2021/22), FLCT’s portfolio comprised of a total of 105 industrial, as well as commercial (comprising of CBD office space or business park properties) properties worth approximately S$6.7 billion across 5 major developed markets:

• Australia: 61 industrial properties, and 4 commercial properties
• Germany: 29 industrial properties
• Singapore: 1 commercial property in Alexandra Technopark
• The United Kingdom: 1 industrial property, and 3 commercial properties
• The Netherlands: 6 industrial properties

Looking at the above, given the number of properties that it has in Australia, no surprises there that the country contributed a huge chunk to the REIT’s overall revenue – as at the end of FY2021/22, 49.5% of the revenue comes from Australia, with the remaining 22.6% of revenue coming from Germany and The Netherlands, 15.7% of revenue coming from Singapore, and 12.2% of revenue coming from The United Kingdom.

In this post, I will be sharing with you more about the REIT in terms of its financial performances, portfolio occupancy and debt profile, as well as its distribution payouts over the last 4 financial years – between FY2018/19 (the financial year before the merger was completed) and FY2021/22, as well as a look at some of the key financial figures and distribution payouts reported for the 1st half of FY2022/23 ended 31 March 2023 and compare them against the figures reported last year (i.e. the first half of FY2021/22 ended 31 March 2022).

Let’s begin:

Financial Performance (between FY2018/19 and FY2021/22)

The following table is Frasers Logistics and Commercial Trust’s financial performance over the last 4 financial years (between FY2018/19 and FY2021/22, the REIT has a financial year ending every 30 September):

Apart from the latest financial year 2021/22 under review, the remaining years saw its top- and bottom-lines recording a stable performance (the reason for the jump in the financial figures was due to the effects of the merger).

As for FY2021/22, the decline in gross revenue and net property income was due to the sale of Cross Street Exchange during the year, and the effects of lower exchange rates (as the Singapore Dollar had strongly appreciated against the Australian Dollar, Euro, and British Pound during the financial year under review.)

In terms of the financial figures’ compound annual growth rate (CAGR), its gross revenue, net property income, and distributable income to unitholders over a a 4-year period were at 20.0%, 18.0%, and 19.4% respectively – very impressive I must say, but it is due to the effects of the merger. In the years ahead, I am of the opinion that the growth in its financial figures will be stabilised (and not in the range of high double-digit percentage figures unless or otherwise there is a merger along the scale of the merger between the 2 Frasers REITs we have seen in 2020).

Portfolio Occupancy Profile (between FY2018/19 and FY2021/22)

The following table is Frasers Industrial & Commercial Trust’s portfolio occupancy profile over the last 4 financial years:

Over the last 4 years, no doubt its occupancy rate have declined (slight negative here), but it is still maintained at a very high level (of about 95.0%), which is good to note.

Portfolio WALE, while it is also on a downward falling trend over the years – where the average lease length have been shortened from 6.3 years in FY2018/19 to just 4.5 years in FY2021/22, but they were well-staggered out over the years, with about 10-15% of leases (on average) expiring in a single financial year.

Debt Profile (between FY2018/19 and FY2021/22)

Especially in the current high interest rate environment, a REIT’s debt profile comes under the microscope of retail investors – and they will shun those with a high aggregate leverage (particularly those over 40.0%), as well as those with a low percentage of borrowings hedged to fixed rates (for the high borrowing costs will negatively impact the REIT’s ability to maintain its distribution payout to unitholders).

In that regard, let us take a look at FLCT’s debt profile recorded over the last 4 financial years:

I must say that FLCT have a very healthy debt profile, where over the years, its aggregate leverage ratio have come down from 30+% to a low of just 27.4% in the latest financial year under review – in fact, at this percentage, it has one of the lowest aggregate leverage levels among all the Singapore-listed REITs.

Another thing to note is the gradual increase in the percentage of borrowings hedged to fixed rates – from about 60% back in FY2018/19 to a high of 81.7% in FY2021/22 – at this percentage, the REIT is in a way, ‘shielded’ from the ill-effects of the high interest rate environment to a certain extent.

Distribution Payout to Unitholders (between FY2018/19 and FY2021/22)

When it comes to investing in REITs, one of the criteria for selection is whether or not it is able to record a steady improvement in its distribution payouts.

The management of Frasers Logistics & Commercial Trust declares a distribution payout once every 6 months (once when it reports its financial results for the 1st half of the year ended 31 March, and once when it reports its financial results for the 2nd half of the year ended 30 September), and over the last 4 financial years, its distribution payouts is as follows:

Apart from a slight dip in its distribution payout in FY2021/22, the other years saw its distribution payout recording improvements. Over a 4-year period, FLCT’s distribution payout grew at a CAGR of 2.1%.

1H FY2021/22 vs. 1H FY2022/23 Performance

As the REIT reports its full financial figures on a half yearly basis, in this section, I will be reviewing its latest half yearly performance – i.e., 1H FY2021/22 ended 31 March 2022 vs. 1H FY2022/23 ended 31 March 2023, as follows:

The lower revenue and net property income was due mainly to the divestment of Cross Street Exchange (on 31 Mar 2022), effects of lower average exchange rates (of AUD, EUR, and GBP against SGD), and absence of early surrender fee from Farnborough Business Park in 1H FY2022/23. Accordingly, its distribution per unit also fell by about 8.6% compared to last year.

In terms of its portfolio occupancy profile as at 31 March 2023, it remains very resilient, with a portfolio occupancy of 95.9%, and a positive rental reversion (for new and/or renewed leases) of +3.6%.

Finally, for its debt profile, aggregate leverage remains healthy at a low of just 27.8%, with its average cost of debt at a pretty low percentage of 1.8%, and about 76.2% of borrowings hedged to fixed rates (slightly on the low side in my opinion.)

Closing Thoughts

I like Frasers Logistics & Commercial Trust for its financial performance, resilient portfolio occupancy (where throughout the last 4 financial years I have looked at, it has been maintained at a high of more than 95.0%), and a very healthy debt profile (where its aggregate leverage have come down from 30+% to just 20+% – particularly, with its aggregate leverage at 27.4% in FY2021/22, it is one of the lowest among all the Singapore-listed REITs).

For the first half of the current financial year 2022/23, even though its financial performance have declined compared to last year, but its portfolio occupancy continues to remain very strong (at 95.9%), and debt profile remaining at a very healthy level (with its aggregate leverage at a low of just 27.8%).

Moving forward, like all the REITs, the high interest rate environment will see the management being more prudent in terms of capital management, and the slowdown in acquisition activities will see the REIT’s financial performance and distribution payout growth moving in the same direction as well. On top of that, the high interest rate on unhedged borrowings will also result in the REIT’s distribution payouts being affected due to higher borrowing costs.

Another thing is the unfavourable foreign currency exchange rates, which will continue to impact the REIT’s financial performance and also its distribution payout.

Finally, in terms of its unit price movements, it is currently in a downtrend (just like many of the Singapore-listed REITs out there). Personally, I will be interested to look to add the REIT to my investment portfolio at a psychological level of S$1.00.

With that, I have come to the end of my analysis of Frasers Logistics & Commercial Trust. I hope the contents presented above will give you a better understanding of the REIT. As always, this post is purely for educational purposes only, and they do not represent any buy or sell calls for the REIT’s units. You should always do your own due diligence before you make any buy or sell decisions.

Disclaimer: At the time of writing, I am not a unitholder of Frasers Logistics & Commercial Trust.

The post My Analysis of Frasers Logistics & Commercial Trust first appeared on The Singaporean Investor.