Frasers Logistics & Commercial Trust Continues to Grow its Portfolio: 5 Highlights from the REIT’s Latest FY2023 Earnings

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Earnings season is in full swing and many REITs have reported their latest earnings or business updates.

Many have succumbed to the high inflation and surging interest rate environment and ended up reporting lower year-on-year distributions.

Frasers Logistics & Commercial Trust (SGX: BUOU), or FLCT, is no exception.

The REIT faced several headwinds for its latest fiscal 2023 (FY2023) earnings ending 30 September 2023 that resulted in a year-on-year distribution per unit (DPU) fall.

Despite these challenges, FLCT continues to focus on growing its portfolio.

Here are five highlights from the logistics and commercial REIT that investors should take note of.

1. A downbeat set of earnings

For the second half of FY2023 (2H FY2023), revenue slipped 0.8% year on year to S$212.8 million.

The performance was because of weaker Australian dollar exchange rates against the Singapore dollar along with lower occupancies at Maxis Business Park and 357 Collins Street.

Adjusted net property income slid 4% year on year to S$155.5 million because of higher property utility costs which pushed up overall operating expenses.

However, the weaker performance was offset by the full six-month contribution from the acquisition of four properties in Australia in 2H FY2023 and the completion of two logistics and industrial properties in the UK.

Finance costs continued rising, surging by 29.7% year on year to S$25 million for 2H FY2023.

This was because of overall higher interest rates and additional borrowings drawn down to fund new developments to grow the REIT’s portfolio.

As a result, DPU fell by 6.6% year on year to S$0.0352.

For FY2023, DPU saw a 7.6% year-on-year decline to S$0.0704, giving the REIT’s units a trailing distribution yield of 6.8%.

2. Robust operating metrics

Despite the lower DPU, FLCT maintained robust operating metrics across its portfolio.

Overall portfolio occupancy stood at 96% with the logistics and industrial segment enjoying full occupancy.

The REIT’s commercial portfolio, however, saw occupancy come in just short of 90%.

FLCT also saw healthy leasing momentum with around 100,000 square metres of space leased for the fourth quarter of FY2023.

Rental reversion on an average rental basis hit nearly 19% for FY2023.

The REIT also saw reduced concentration risk with no tenant contributing more than 5% to gross rental income (GRI).

In addition, the top 10 tenants only made up slightly over a quarter of GRI contribution.

3. Healthy debt profile with a low cost of debt

FLCT has one of the lowest aggregate leverage ratios within the Singapore REIT space.

Gearing stood at 30.2% as of 30 September 2023, up slightly from 28.6% three months ago.

The cost of borrowings was also low at 2.2% but is slowly creeping up to 2.4% in the most recent quarter due to higher borrowings drawn down.

77.2% of the REIT’s debt is on fixed rates with the interest coverage ratio staying healthy at 7.1 times.

The manager has provided a sensitivity analysis whereby every 0.5 percentage point increase in the variable borrowings will lower FY2023 DPU by 0.85%.

The REIT still has available debt headroom of S$1.1 billion and S$2.67 billion before it hits the 40% and 50% gearing limit, respectively.

4. Growing the portfolio through acquisitions

The manager has continuously grown FLCT’s portfolio through value-accretive development and forward funding acquisitions.

A forward funding acquisition in Worcester, UK, was completed in February at a total consideration of £22 million while a logistics and industrial development was completed in March for £23.3 million.

The REIT still has a forward funding acquisition in Ellesmere in the UK on track for completion in December this year.

Apart from these developments, FLCT also announced the acquisition of a logistics development in the Netherlands for a total acquisition outlay of €14.8 million.

This freehold, forward-funding development was purchased at a 12.7% discount to valuation and is DPU-accretive.

It will also increase FLCT’s Netherlands portfolio value from 7.5% to 7.9%.

5. Ongoing AEI

FLCT is also enhancing value for unitholders through asset enhancement initiatives (AEI).

Central Park in Australia is undergoing a façade replacement project that is 65% complete.

Works are due to be completed by the fourth quarter of FY2024, capping off a three-year project to enhance the appeal of the building.

The good news is that building occupancy has increased from December 2020 to September 2023, going from 82.9% to 96.1%.

Furthermore, 95% to 99% of the material will be recycled from the project as part of FLCT’s ESG initiatives.

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Disclosure: Royston Yang owns shares of Frasers Logistics & Commercial Trust.

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