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AnalysisSingapore

10 things I learned from the 2021 Frasers Logistics & Commercial Trust AGM

Frasers Logistics & Commercial Trust (FLCT) is a Singapore-listed real estate investment trust that owns a portfolio of 100 industrial and commercial properties across five countries – Australia, Germany, Singapore, the United Kingdom, and the Netherlands. As of 30 September 2020, its portfolio is valued at S$6.2 billion.

Here are 10 things I learned from the 2021 Frasers Logistics & Commercial Trust AGM.

1. Gross revenue grew to a record S$332 million, an increase of 53.0% from $217.1 million in FY2019 and net property income (NPI) was S$258.3 million, an increase of 46.2% compared to a year ago. CEO Robert Wallace attributed FLCT’s higher top and bottom line to the merger with FCOT and strong portfolio performance across its properties that provided stability and diversification benefits across sectors and geographies.

2. Distributable income rose to S$201.1 million with distribution per unit (DPU) up 1.7% year-on-year to 7.12 Singapore cents for FY2020. The higher DPU was achieved on the back of a record S$332.0 million in gross revenue amidst the COVID-19 pandemic. The current DPU yield stands at 5.1% based on the closing price of S$1.39 per unit on 25 February 2021.

NAV was S$1.10 per unit, up 19.6% from S$0.92 as a result of the higher value of investment properties.

3. Gearing ratio as at 30 September 2020 is at a comfortable level of 34.7% — well within 50% leverage limit set by the Monetary Authority of Singapore. The CEO said that FY2021 borrowing levels will be further reduced with proceeds from the divestments of the cold storage facility and Adelaide airport assets in Australia which are expected to be received around March 2021.

He added that cost of borrowings stood at 1.9% with 54.6% of borrowings at fixed rates with a debt headroom vicinity of S$1.651 million. Interest coverage ratio stood at 6.4 times as at 30 September 2020.

4. The CEO said the management engaged in active portfolio management throughout the year. Sixty-four new leases were completed — of which 27 were new leases and 37 were renewals (around 10.5% of the total portfolio’s lettable area). He added that the team is engaged with tenants to have renewals and leases extended.

FLCT’s portfolio achieved a high occupancy rate of 97.5%. FLCT’s 93 logistics and industrial properties achieved an occupancy rate of 100%, and its seven commercial properties achieved an occupancy rate of 94.3% as of 30 Sep 2020. Tenant retention stood at a healthy rate of 88.7% and average rental reversion was stable at -0.1%.

5. The CEO reviewed the acquisitions and divestments throughout 2020. Acquisitions included:

  • The remaining 50% stake in Farnborough Business Park for approximately S$158.4 million on 30 April 2020
  • The logistics facility in Australia and Maxis Business Park in UK on 12 August 2020 at a total value of approximately S$143.2 million.

Divestments included:

  • The sale of the remaining 50% stake in the cold storage facility in Queensland Australia for A$152.5 million on 23 November 2020, representing a 12.2% premium to book value. From a capitalisation rate viewpoint, this was an improvement when compared against the 50% stake sold 12 months earlier for A$134 million.
  • Three leasehold industrial properties in South Australia are expected to be divested by 31 March 2021 for approximately A$29.6 million, representing 19.4% premium to book value. The CEO added that the management’s view is to focus on the east coast of Australia, so FLCT will no longer have any assets in South Australia.

6. The CEO explained that diversification across a large tenant base and a well spread-out lease expiry profile contributed to FLCT’ portfolio resiliency. Its top 10 tenants comprise four office tenants: Commonwealth of Australia, Google Asia Pacific Singapore, Rio Tinto Australia, Commonwealth Bank of Australia; and six other logistics tenants. He said the top 10 tenants represents under 25% of the total portfolio revenue with not one tenant in the portfolio representing more than 5% of the portfolio’s income.

Source: Frasers Logistics & Commercial Trust

7. FLCT’s consumer and logistics tenants continue to benefit from major structural changes driven by the acceleration of e-commerce activities during the pandemic. As at 30 September 2020, 31.4% of tenants in the logistics and industrial portfolio were involved in e-commerce and/or e-fulfilment activities, demonstrating the quality and resilience of its tenant base during this challenging period.

Only 7.9% of gross rental income is due for renewal in FY2021. Expiries in 2021 comprise 13 industrial and 57 commercial leases, with each individual lease constituting ≤0.4% of gross rental income. Weighted average lease expiry was 5.5 years for the logistics and industrial portfolio, and 4.2 years for the commercial portfolio.

8. The CEO said that FLCT is committed to sustainability and recognizes the benefits of maintaining a green portfolio which has enabled them to tap into S$660 million worth of sustainability-linked loans. FLCT was named global sector leader for listed industrials for the third time from the Global Real Estate Sustainability Benchmark (the global ESG benchmark for real estate). 

Its properties were also the first to achieve six-star Green Star ratings for industrial facilities in New South Wales, Victoria, and Queensland, retaining its lead as the highest Green Star performance-rated industrial portfolio in Australia. FLCT’s commercial office portfolio also achieved an overall four-star Green Star rating from the Green Building Council Australia.

9. A unitholder asked about the impact of COVID-19 on the performance of FLCT. For FY2020, the pandemic impacted FLCT’s distributable income by about S$5.7 million, comprising mainly rental waivers for tenants under the Singapore and Australian government concession deeds and provisions made for doubtful debts. 

The retail component was the most affected and enquiry levels for its two commercial properties in Singapore have been muted as a result of ongoing restrictions. But the CEO said its retail component represented only 2.5% of GRI and did not have any material impact till date.

He added that parts of the portfolio have benefitted as a result of the changes brought about by COVID restrictions. The industrial portfolio in Australia benefited from an increase in e-commerce activities that drove demand for industrial facilities. The industrial portfolio in Germany and Netherlands also stood tall in the wake of the pandemic. In the UK, although physical occupancy numbers have been low due to restrictions, the portfolio is still well occupied. The office and business parks portfolios are also benefitting from trends towards a hub and spoke model as staff are encouraged to work in suburban locations.

10. A unitholder asked for details of the pipeline of properties from FLCT’s Sponsor. Another unitholder asked if there could be a merger with Frasers Centrepoint Trust (FCT) and whether FLCT should diversify into data centres.

FLCT has access to a sizeable rights-of-first-refusal (ROFR) pipeline of more than S$5 billion granted by the Sponsor. The ROFR pipeline totals approximately 2.0 million square metres comprising logistics and industrial assets (75.5%), office and business parks (19.2%), and CBD commercial assets (5.3%). By geography, the majority of the ROFR pipeline is located in Australia (36.0%), followed by Germany (26.9%) and the UK (24.4%).

Source: Frasers Logistics & Commercial Trust

Currently there are no plans for a merger with FCT or to diversify into data centres as the management remains focused on FLCT’s existing asset classes and subsectors.

The fifth perspective

Since FLCT’s listing on the SGX in June 2016, the value of FLCT’s portfolio value has more than tripled to S$6.2 billion, a cumulative average growth rate of 40.3% per annum. The completed merger with FCOT enabled FLCT to become the seventh largest S-REIT giving FLCT a higher weighting in the FTSE EPRA/NAREIT Index.

The management has displayed a proactive and prudent approach to investment, asset and capital management over the years, ensuring acquisitions were a strategic fit with the overall FLCT portfolio and selective divestments to recycle capital from non-core assets. 

While valuations for CBD commercial properties were lower as a result of softer leasing markets, valuations for industrial assets remained robust as capitalisation rates continued to tighten.

Guided by the management and the Sponsor’s global expertise, FLCT’s portfolio continues to retain its resiliency. Unitholders will expect the management to actively build upon FY2020’s credible performance to deliver stable and regular distributions and sustainable long-term growth.

Liked our analysis of this AGM? Click here to view a complete list of AGMs we’ve attended »

Julian Kay

Julian graduated with a Bachelor of Business honours degree in banking and wealth management from the University of College Dublin. He possesses CFA Level I and IBF Level 1 Fund Management qualifications, and was previously in the investor relations industry.

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