Frasers Logistics and Industrial Trust (SGX:BUOU), or FLT for short, posted a stellar set of results for the three months ended 31 March 2018. Not only did revenue jump by a sizeable 6.4% year-on-year, distribution per unit (ultimately what is most important to unitholders) increased a notable 3.4% as well.
These are certainly impressive numbers which unitholders should be pleased about. However, even beyond these headline numbers, there are other positive aspects of the trust’s business that bode well for its future. Here are three more positives from the latest quarterly earnings worth highlighting.
DPU growth despite change in distribution policy
As mentioned earlier, distribution per unit rose 3.4% year-on-year. This came despite FLT’s change in distribution policy effected on 30 September 2017.
Previously, the trust had a distribution policy to distribute 100% of FLT’s distributable income. However, on 30 September, FLT has changed its policy to distribute at least 90% of its distributable income, keeping 10% for working capital expenses or for further acquisition strategies.
Despite, the change in policy and reduction in payout ratio, the trust still managed to increase its DPU on the back of strong growth in rental income. This is testament to the REIT’s robust portfolio.
Valuation gains of existing properties
Valuation gains in the portfolio of a property trust or a REIT can sometimes be overlooked by investors as they do not immediately affect distributions. However, property revaluation gains are actually crucial in growing the REIT’s book value per unit.
Also, a portfolio gain can increase its asset base, thereby lowering its existing gearing ratio, and creating more headroom to leverage on debt. The trust can realise the revaluation gain when it decides to sell the asset.
For the six months ended 31 March 2018, the value of FLT’s investment properties has grown A$20 million or 1.04% to A$1.93 billion. This is once again testament to the trust’s strong line up of properties that can appreciate further over the longer term.
Improved lease expiry profile
Finally, FLT managed to improve its lease expiry profile from a year ago by renewing contracts that were expiring this year. It has also managed to extend the contracts of some of its strategic tenants. Consequently, leases expiring before September 2018 have been reduced to just 1.1%, while those expiring before September 2019 only make up 10.3% of the entire gross rental income.
Below is a snapshot of the full lease expiry profile:
Source: Frasers Logistics and Industrial Trust FY17/18 Q2 Results Presentation
As you can see, FLT has strategically managed to ensure that its lease expiry dates are staggered. Furthermore, 27.8% of its leases have extremely long contracts that run to 2027 and beyond, which gives FLT stable and visible rental income for years to come.
The Foolish bottom line
FLT certainly had a good quarter. Besides its growth in the headline numbers, the management team has done really well in staggering its leasing expires and has taken the initiative to renew contracts that were approaching expiry. Together with its strong line-up of properties that have the propensity to appreciate, I do believe that FLT is well placed to continue to reward unitholders for many years to come.
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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 owns units in Frasers Logistics and Industrial Trust.