Frasers Logistics & Commercial Trust Review @ 20 November 2022

Basic Profile & Key Statistics

• Main Sector(s): Office, Industrial & Logistics
• Country(s) with Assets: Australia, Singapore, Germany, England & Netherlands
• No. of Properties (exclude development/associate/fund): 105

Key Indicators

Performance Highlight

Gross revenue and NPI have declined yoy mainly due to the divestment of Cross Street Exchange and the weaker exchange rates against SGD. While distributable income remains similar (partly contributed by $5.35 million from divestment gain and a higher proportion of management fees paid in units), DPU has reduced slightly due to a larger unitholder base as compared to the previous year. 

Rental Reversion

FY22 portfolio rental reversion is at -3.4% based on the final year rent of the outgoing lease versus the first-year rent of the incoming lease. It would be +6.2% based on the average rent of the incoming lease versus the average rent of the outgoing lease.

Acquisition & Development

In May and June, FLCT complete the acquisition of a suburban commercial property and 3 logistics and industrial properties in Australia. Subsequently, in July, FLCT acquired land in North West England, UK, which is targeted to complete by 2H 2023. 

The existing warehouse development in West Midlands, UK is expected to be completed by 1H 2023 while the target date for Connexion II development is expected to be delayed from the end of 2022 to 1Q2023. 

Divestment

Divestment of Port Melbourne is completed on 24 October at a premium above book value.

Sensitivity to Interest Rate

For every 0.5% interest rate increase, the DPU is impacted by 0.05 cents, which is around 0.7%.

Related Parties Shareholding

• REIT sponsor's shareholding: Below median for more than 10%
• REIT manager's shareholding: Below median for more than 20%
• Directors of REIT manager's shareholding: Above median for more than 20%

Lease Profile

• Occupancy: ± 5% from median
• WALE: Above median for more than 10%
• Highest lease expiry within 5 years: Below median for more than 20%; Falls in FY25
• Weighted average land lease expiry: Above median for more than 20%

Debt Profile

• Gearing ratio: Below median for more than 20%
• Cost of debt: Below median for more than 20%
• Fixed rate debt %: Above median for more than 10%
• Unsecured debt %: ± 10% from median
• WADM: ± 10% from median
• Highest debt maturity within 5 years: ± 10% from median; Falls in FY25
• Interest coverage ratio: Above median for more than 20%

Diversification Profile

• Top geographical contribution: Below median for more than 20%
• Top property contribution: Below median for more than 20%
• Top 5 properties' contribution: Below median for more than 20%
• Top tenant contribution: Below median for more than 20%
• Top 10 tenants' contribution: Below median for more than 20%

Key Financial Metrics

• Property yield: ± 10% from median
• Management fees over distribution: ± 10% from median; $6.71 distribution for every dollar paid 
• Distribution on capital: Above median for more than 10%
• Distribution margin: Above median for more than 20%

Trends

Let's compare only for the period after the merger with Frasers Commercial Trust in 2Q 2020.

• Uptrend: NAV per Unit, Interest Coverage Ratio
• Flat: DPU, Occupancy,  Distribution Margin
• Downtrend: Property Yield, Distribution on Capital

Relative Valuation

• Current 52 Weeks Range: 18.4%
• P/NAV: Below -2SD for 1y, 3y & 5y
• Dividend Yield: Above +2SD for 1y; Above +1SD for 3y & 5y

Author's Opinion

Favorable	Less Favorable
Diversified Sector	Low REIT Sponsor's Shareholding
High Directors of REIT Manager's Shareholding	Low REIT Manager's Shareholding
Long WALE	Property Yield Downtrend
Well Spread Lease Expiry	Distribution on Capital Downtrend
Long Weighted Average Land Lease Expiry
Low Gearing Ratio
Low Cost of Debt
High Fixed Rate Debt %
High Interest Coverage Ratio
Low Top Geographical Contribution
Low Top Property & Top 5 Properties Contributions
Low Top Tenant & Top 10 Tenants Contributions
High Distribution on Capital
High Distribution Margin
NAV per Unit Uptrend
Interest Coverage Ratio Uptrend

Performance has declined as compared to the previous 1H mainly due to the divestment of Cross Street Exchange and the weaker exchange rates against SGD. To reduce the distributable income gap from the divestment of Cross Street Exchange, FLCT has acquired new properties, distributed partial divestment gain and elected to receive a higher % of fees in units (100% current vs 73.6% the previous year). Moving forward, given the low gearing ratio, let's see manager would perform a large-scale acquisition in the near term. 

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*Disclaimer: Materials in this blog are based on my research and opinion which I don't guarantee accuracy, completeness, and reliability. It should not be taken as financial advice or a statement of fact. I shall not be held liable for errors, omissions and loss or damage due to the use of the material in this blog. Under no circumstances does the information presented on this blog represent a buy, sell, or hold recommendation on any security, please always do your own due diligence before any decision is made.