On 7 May 2024, Frasers Logistics & Commercial Trust (“FLCT”) have announced their first half year result for FY2024. DPU has decreased due to higher finance costs, offset by the increase in adjusted net property income and higher capital distribution. The commercial properties are currently dragging down the overall occupancy of the portfolio, which may become an issue if it starts to negatively affect DPU. Overall there are indicators that DPU may continue to decrease, and investors will need to assess their risk appetite.
Website: Financial Statements And Related Announcement::Half 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 | -1.1% | No Info |
DPU decreased by 1.1% for the first half of 2024 to SGD0.0348 per share from SGD0.0352 per share for the same period in the previous financial year. The main reason for the decrease was due to an increase in finance costs, partially offset by increase in adjusted net property income and an increase in capital distribution. The metric is Unfavorable.
Occupancy
| Metrics | Current | Previous |
|---|---|---|
| Occupancy | 94.3% | 95.8% |
Occupancy rate as of 31 March 2024 decreased to 94.3%. This is contributed by 100% for the logistics and industrial assets and 85.0% for their commercial assets. This metric has worsened to Neutral as the overall is below my expected healthy occupancy rate of 95%. Investors should continue to monitor for the commercial assets.
Gearing ratio
| Metrics | Current | Previous |
|---|---|---|
| Gearing Ratio | 32.7% | 30.7% |
Gearing ratio increased to 32.7% as of 31 March 2024. The increase was due to a notable increase in loans and borrowings that were drawn down. The metric currently remains 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 | 5.9x | 6.2x |
The interest coverage stands at 5.9 times as of 31 March 2024. This metric is Favorable. The high interest coverage is attributable to their low cost of borrowings of 2.5% and relatively low gearing ratio. This will provide a larger buffer from interest rate hikes, as the Federal Reserve on 2 May 2024 has signalled that US borrowing costs are likely to remain higher for longer, as it wrestles with persistent inflation across the world’s biggest economy. This was after increasing the interest rates to a range between 5.25% and 5.50% on 26 July 2023.
Website: Federal Reserve chair Jay Powell signals interest rates will remain higher for longer
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 75.9% their debt is on fixed rates. The sensitivity analysis using the information as of 31 March 2024:
| Description | Amount (SGD’000) |
|---|---|
| Total Debt | $2,284,000 |
| Debt Not Hedged (%) | 24.1% |
| Debt at Floating Rate Exposed | $550,444 |
| 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 | -$2,752 | -1.0% |
| + 100 bps | -$5,504 | -2.1% |
| + 150 bps | -$8,257 | -3.1% |
| + 200 bps | -$11,009 | -4.2% |
| + 250 bps | -$13,761 | -5.2% |
| + 300 bps | -$16,513 | -6.3% |
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 | 2.0 years |
Weighted average term to maturity of their debt remained unchanged at 2.0 years as of 31 March 2024. This metric remains Neutral. At least half of their debt needs to be renewed 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 | 0.87 |
The Price to Book (“P/B”) ratio remains unchanged at 0.87. This is computed using the closing share price of SGD1.01 per share on 17 May 2024 and the net asset value per share of SGD1.16 as of 31 March 2024. The P/B ratio is Favorable.
Dividend yield
| Year | Yield | Total |
|---|---|---|
| 2024 | 3.45% | SGD 0.035 |
| 2023 | 6.97% | SGD 0.070 |
| 2022 | 7.54% | SGD 0.076 |
| 2021 | 7.60% | SGD 0.077 |
| 2020 | 7.05% | SGD 0.071 |
| 2019 | 6.93% | SGD 0.070 |
The dividend paid out have been on a downtrend. Therefore my expected dividend payout for the calendar year 2024 will be SGD0.070 per share, annualised based on the amount paid out for the first 6 months of 2024. This is lower than what was paid out in the previous calendar years.
With a closing share price of SGD1.02 per share as of 17 May 2024, this translates to a dividend yield of 6.90%. For my benchmark, a general reasonable range would be around an average of 5.50% to 6.50%. The dividend yield is Favorable.
Website: Reasonable Dividend Yield 2024Q2
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 17.5% and 15.6% of GRI contribution for the logistics & industrial tenants and commercial tenants respectively with no single tenant accounting for more than 4.6% during the period. This provides income diversity to the portfolio.
Summary
| Metrics | Financials | Rating |
|---|---|---|
| Distribution Per Unit | -1.1% | Unfavorable |
| Occupancy | 94.3% | Neutral |
| Gearing Ratio | 32.7% | Favorable |
| Interest Coverage | 5.9x | Favorable |
| Debt Maturity Profile | 2.0 years | Neutral |
| Price to Book Ratio | 0.87 | Favorable |
| Overall | | Neutral |
Overall, the fundamentals of FLCT have worsened slightly. The commercial properties continue to see a decrease in occupancy level, which may be a concern for investors if it negatively affects DPU. The debt maturity profile also remains at 2 years and may be due for renewal over the next few quarters in the current higher interest rate environment. Investors will need to assess their risk appetite.
Disclaimer: Not financial advice. All data and information provided on this site is for informational purposes only.
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