Listed as recently as 2016, Frasers Logistics and Industrial Trust (SGX: BUOU), or FLT for short, is certainly considered one of the younger REITs in Singapore.
It focuses on investing in logistics and industrial real estate located exclusively in Australia. The trust owns a portfolio of around 6o properties worth around A$2 billion.
Recently, I took a look at the trust’s 2017 annual report and found that in spite of its relative youth and geographically-concentrated portfolio, there are some positives about the trust that bode well for its future.
Freehold land or long leasehold tenures
FLT has strategically opted to invest in real estate that is freehold or have long leasehold tenures. As of 31 December 2017, 59.8% of its properties sit on freehold land, while a further 30.9% are on leasehold land with more than 90 years remaining.
This provides the REIT with stability and less capital expenditure requirements to renew its land lease. Furthermore, freehold land tends to appreciate in value, which can further increase the REIT’s asset base in the future.
Ability to attract tenants
The attractiveness of FLT’s portfolio is illustrated by its high occupancy rate and long weighted average lease expiry (WALE). As of 31 December 2017, its portfolio had a 99.4% occupancy rate and WALE of 6.79 years.
With such a long average lease expiry, unitholders can be sure that the property income and consequently, the distributable income of the REIT will be consistent over the next few years.
Built-in rental escalations
FLT has also implemented a built-in rental escalation policy on all its leasing transactions since its listing. On average, there is a 3.1% fixed rental escalation per annum.
With the step-up rental escalations in place, the REIT has secured annually increasing rents on its property without having to renegotiate rental contracts with tenants.
Relatively new portfolio with modern facilities
Another positive of FLT’s property portfolio is that the average age of its portfolio stands at just 7.1 years. As the properties are relatively new, the trust has no needs to fork out additional capital for improvements or modernisations in the near term, thereby freeing up capital for other working capital uses or for more yield-accretive acquisitions.
The Foolish bottom line
FLT has done a good job in acquiring properties that can attract and retain tenants. Furthermore, the fact that most of its assets are on freehold or long land lease tenures makes its property portfolio all the more likely to appreciate over time and to reward long-term unitholders.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Jeremy Chia doesn’t own shares in any companies mentioned.