In the grip of soaring inflation and climbing interest rates, Frasers Logistics & Commercial Trust (SGX: BUOU) – FLCT to those in the know – has unveiled its FY2023 earnings. And, in step with its peers in the REIT universe, FLCT felt the sting, with these economic headwinds chiselling away at its earnings and leading to a squeeze in the year-over-year (yoy) distribution to shareholders.
Despite these challenges, FLCT has weathered the economic storm and come out with a balance sheet that could be investors’ safe haven.
Here are 5 key highlights from the REIT’s earnings in FY2023.
1. The dip in earnings
For the second half of FY2023 (H2 2023), FLCT reported a modest yoy revenue decline of 0.8% and a Net Property Income (NPI) drop of 4.9%. This dip is attributed to the softer Australian dollar, some occupancy challenges at Maxis Business Park and 357 Collins Street, and portfolio revaluation decreases. Nevertheless, the blow was softened by positive contributions from newly acquired properties and robust rental growth in their Australian logistics portfolio.
2. Slight decline in distributions, but yields remain attractive
The Distribution Per Unit (DPU) for the H2 2023 stood at 3.52 Singapore cents, a 6.6% decrease yoy, yet it met a solid 98.6% of FLCT’s full-year forecast. This includes a capital distribution that cushioned the DPU against broader valuation drops across their portfolio. The yield is also attractive at around 6.5% based on its current share price.
3. Occupancy and rental performance: A bright spot
Despite weakness in earnings, FLCT’s portfolio occupancy remained high at 96%, showcasing the trust’s capability to attract and retain tenants. The logistics and industrial segment was fully occupied, while the commercial portfolio showed a minor quarterly decrease. The trust achieved a remarkable average positive rental reversion of 30.1% in the last quarter, signalling strong demand and effective property management. For FY2023, FLCT has a healthy reversion of 18.9%.
The strong rental reversion was mainly due to the significant rental uplifts in the logistics and industrial segment. Commercial spaces also enjoyed positive reversions. Despite Google Asia Pacific’s planned departure from Alexandra Technopark, FLCT is proactive, with leasing inquiries already covering around 40% of the upcoming vacant space.
4. Strategic development and growth focus
FLCT management has been on the move, smartly expanding the trust’s portfolio with strategic, value-boosting acquisitions and developments. A case in point is their recent completion of a forward funding acquisition in Worcester, UK, locked in at £22 million, closely followed by a strategic completion of a logistics and industrial development priced at £23.3 million in March. Not resting on their laurels, a new logistics and industrial property development in the UK is set to be completed by the end of this year.
Crossing over to Netherlands, FLCT has acquired a logistics development with a total investment outlay of €14.8 million. This acquisition is particularly noteworthy, secured at a substantial 12.7% discount to its valuation, further enhancing dividend distribution prospects for its stakeholders. Such strategic acquisitions are incrementally bolstering FLCT’s presence in the Netherlands, propelling the value of its Dutch portfolio from a commendable 7.5% to a robust 7.9%. Overall, FLCT is aiming to increase its logistics and industrial portfolio’s value to 85%, positioning itself for future growth.
5. A robust and prudent financial approach
FLCT has maintained a strong gearing ratio, providing about S$1 billion in debt headroom, underscoring its robust balance sheet and potential for inorganic growth opportunities. The trust has been prudent, with a moderate rise in the cost of borrowings and a clear focus on acquisitions in developed markets.
Is it time to add FLCT to your portfolio?
FLCT’s solid performance amidst economic headwinds may be just the opportunity you have been waiting for. With a robust balance sheet, strong rental reversions, attractive dividend yield and strategic growth initiatives, FLCT could be a bright spot in your investment portfolio. Dive into the details, watch for those accretive acquisition moves, and consider if FLCT’s stable distributions make it the right pick for your dividend play. Don’t miss out on what could be a savvy addition to your investment strategy!
Disclaimer: ProsperUs Head of Content & Investment Lead Billy Toh doesn’t own shares of any companies mentioned.
