On 6 November 2024, Frasers Logistics & Commercial Trust (“FLCT”) have announced their full year result for FY2024. Management has managed to lengthen their debt maturity profile, which gives FLCT more time to manage their debt. This may also mean that the loans were renewed at rates lower than the last few quarters and potentially next few quarters with the uncertainty on future interest rate cuts.
FLCT has enjoyed their lower cost of borrowings compared to many other REITs though recently we are seeing a notable increase in finance costs. With the Federal Reserve announcing on 15 November 2024 that they will cut their key interest rate slowly and deliberately in the coming months, we may see further increases in finance costs which will continue to erode DPU. This is something that the market may be pricing in, with FLCT trading at a discount to its book value.
Take note that with the share swap deal between Thai Beverage and TCC Assets, Frasers Hospitality Trust was hit with higher withholding tax rates. On surface level, there are no mention by management of any potential impact on FLCT despite also having exposure to Australia properties. This is something investors will need to keep a lookout for.
Disclaimer: Not financial advice. All data and information provided on this site is for informational purposes only.
Website: Financial Statements And Related Announcement::Full Yearly Results
Photo source: https://fifthperson.com/2023-frasers-logistics-commercial-trust-agm/
Financial Highlights
Distribution Per Unit (“DPU”)
| Metrics | Current | Previous |
|---|---|---|
| Distribution Per Unit | -4.6% | No Info |
| Rating | Unfavorable | Unfavorable |
With effect from November 2024, I will be using the half year-on-year DPU changes as references for REITs that share their half yearly DPU changes. This is due to REITs are usually not as affected by seasonal changes.
For FLCT, DPU disclosed are as follows for the
- Full Year of FY2024: SGD0.0680 per share
- Second Half of FY2024: SGD0.0332 per share
- First Half of FY2024: SGD0.0348 per share
This represents that when comparing half year-on year, DPU has decreased by 4.6% in the second half of FY2024 compared to the first half of FY2024. The main reason for the decrease was due to an increase in finance costs. The metric remains Unfavorable.
Occupancy
| Metrics | Current | Previous |
|---|---|---|
| Occupancy | 94.5% | 95.0% |
| Rating | Neutral | Favorable |
Occupancy rate as of 30 September 2024 decreased to 94.5%. This is contributed by 98.8% for the logistics and industrial assets and 87.5% for their commercial assets. The decrease this quarter arose from the fall in occupancy for Australia Logistics and industrial assets, while commercial assets remained stable. This metric has shifted back to Neutral as the overall is slightly below my expected healthy occupancy rate of 95%.
Gearing ratio
| Metrics | Current | Previous |
|---|---|---|
| Gearing Ratio | 33.0% | 33.2% |
| Rating | Favorable | Favorable |
Gearing ratio further remain relatively unchanged at 33.0% as of 30 September 2024. 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 | 5.0x | 5.7x |
| Rating | Favorable | Favorable |
The interest coverage decreased to 5.0 times as of 30 September 2024. While the significant decrease is something investors should be concerned about, the metric remains Favorable as it is above my preferred interest coverage of 3.0 times. The high interest coverage is attributable to their low cost of borrowings of 2.8% for the trailing 12 months and relatively low gearing ratio.
Debt maturity profile
| Metrics | Current | Previous |
|---|---|---|
| Debt Maturity Profile | 2.4 years | 2.0 years |
| Rating | Favorable | Neutral |
Weighted average term to maturity of their debt lengthened at 2.4 years as of 30 September 2024. This metric shifted towards Favorable, also a good indication that management is managing their debt. Do note that approximately 47.7% of their debt will mature in the next 2 financial years.
Price to Book Ratio
| Metrics | Current | Previous |
|---|---|---|
| Price to Book Ratio | 0.85 | 0.89 |
| Rating | Favorable | Favorable |
The Price to Book (“P/B”) ratio became more discounted at 0.85. This is computed using the closing share price of SGD0.955 per share on 15 November 2024 and the net asset value per share of SGD1.13 as of 30 September 2024. The P/B ratio is Favorable as it is still a discount from book value.
As of 15 November 2024, the Market Capitalization is approximately SGD3,593 million.
Website: Yahoo Finance: Frasers Logistics & Commercial Trust (BUOU.SI)
Dividend
| Year | Yield | Total |
|---|---|---|
| 2024 | 7.12% | SGD 0.068 |
| 2023 | 7.37% | SGD 0.070 |
| 2022 | 7.98% | SGD 0.076 |
| 2021 | 8.04% | SGD 0.077 |
| 2020 | 7.46% | SGD 0.071 |
| 2019 | 7.33% | SGD 0.070 |
With the final dividend declared, the total dividend payout for the calendar year 2024 amounted to SGD0.068 per share. At a closing share price of SGD0.955 per share as of 15 November 2024, this translates to a dividend yield of 7.12%. For my benchmark, a reasonable yield would be around an average of 5.00%. The dividend yield for FLCT is Favorable.
Website: Reasonable Dividend Yield 2024Q4 – 5.00%
Investors will need to take note however, that the DPU has been on a downtrend for the last few years. Therefore, there is a risk that it may continue to decrease which may negatively affect share price.
Interest Rate Sensitivity
The Federal Reserve on 7 November 2024 have further slashed interest rate by a quarter point to a range of 4.50% to 4.75%. This is in line with earlier expectations for future rate cuts, which will benefit REITs in general.
Website: Federal Reserve cuts interest rates by a quarter point
The Federal Reserve has subsequently announced on 15 November 2024 that they will cut their key interest rate slowly and deliberately in the coming months, in part because inflation has shown signs of persistence, and the officials want to see where it heads next.
Website: Powell says Fed will likely cut rates cautiously given persistent inflation pressures
FLCT have disclosed that every potential +50 bps in interest rates on variable rate borrowings is estimated to reduce DPU by 0.08 Singapore cents per annum. With DPU of SGD0.068 per share for FY2024, this is illustrated as below:
| Change in Interest Rates | Impact on DPU (SGD) | Change as % of FY2024 DPU |
|---|---|---|
| 50 bps | SGD 0.08 | 1.2% |
| 100 bps | SGD 0.16 | 2.4% |
| 150 bps | SGD 0.24 | 3.5% |
| 200 bps | SGD 0.32 | 4.7% |
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 18.1% and 14.9% of GRI contribution for the logistics & industrial tenants and commercial tenants respectively with no single tenant accounting for more than 4.5% during the period. This provides income diversity to the portfolio.
Summary
| Metrics | Financials | Rating |
|---|---|---|
| Distribution Per Unit | -4.6% | Unfavorable |
| Occupancy | 94.5% | Neutral |
| Gearing Ratio | 33.0% | Favorable |
| Interest Coverage | 5.0x | Favorable |
| Debt Maturity Profile | 2.4 years | Favorable |
| Price to Book Ratio | 0.85 | Favorable |
| Overall | Favorable |
Overall, the fundamentals of FLCT remains Favorable. The main favorable thing of FLCT remains their debt profile, which has allowed them to continue managing costs. Do note however that this is eroding, given the notable increase in finance costs. The market also seems to be heavily discounting their share price, likely to take into consideration potential DPU decreases. Investors will need to assess their risk appetite.
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).
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