Frasers Logistics and Industrial Trust (SGX: BUOU), or FLT, is a REIT with a portfolio of logistics and industrial properties concentrated within major logistics and industrial markets in Australia, Germany and the Netherlands. The REIT was listed in June 2016. FLT’s strategy is to invest in a diversified portfolio of income-producing real estate, allowing it to provide a steady stream of rental income for the REIT. With that, here are seven interesting things to note about FLT.
1. FLT has a total of 82 properties within its portfolio, of which 60 are located in Australia, and the remaining 22 are in Europe. The total portfolio value as at 31 March 2019 is A$3 billion, with about a third belonging to Europe and the rest to Australia. The total gross lettable area of all the properties is 1.96 million square metres.
2. The weighted average lease expiry (WALE) for the portfolio is 6.61 years. This is based on the gross rental income per tenant and is considered a fairly long WALE. Comparable industrial REITs such as Mapletree Industrial Trust (SGX: ME8U) (MIT) has a WALE of 3.6 years, Ascendas REIT (SGX: A17U) (A-REIT) has a WALE of 4.2 years, and ESR-REIT (SGX: J91U) has a WALE of 3.7 years. A longer WALE provides stability and assurance to unit-holders that their rental income will be locked in for longer periods before it has to be renewed.
3. FLT had a very high occupancy rate (by gross rental income) of 99.6%. In fact, the European portfolio had a 100% occupancy rate, while the Australian one had an occupancy rate of 99.4%. A comparison with MIT and A-REIT showed their occupancy rates hovered at 89.8% and 91.9% respectively. For ESR-REIT, the occupancy rate was 92%. This shows that FLT is maximising rental income for unitholders with hardly any vacancies across all their properties.
4. Aggregate leverage for FLT stood at 35.1%, which allows the REIT to have sufficient headroom for borrowing before it hits the statutory gearing limit of 45%. By comparison, MIT’s leverage was 33.8%, A-REIT’s leverage was 36.3%, and ESR-REIT was at 42%.
5. The weighted average cost of debt for FLT’s borrowings was reduced to 2.4% from 2.9%. This is a low cost of debt compared to the other industrial REITs. Using the same three other industrial REITs for comparison, MIT’s cost of debt was 3.0%, A-REIT’s cost of debt was also 3.0% while ESR-REIT’s cost of debt was around 4%.
6. FLT paid out a distribution per unit (DPU) of 3.54 Singapore cents for the half-year ended 31 March 2019. The REIT makes semi-annual distributions. The annualised DPU stands at 7.08 Singapore cents and at the REIT’s last traded price of S$1.18, the annualised dividend yield is 6%.
7. The REIT executed a 10-year lease extension on its property at 468 Boundary Road in Victoria, Australia. The lease renewal includes rental escalation clauses for a 2.5% increase per annum. The asset will also undergo asset enhancement initiatives (AEI), which will include an office refurbishment and a car park extension. The expected return on the AEI is 8%.
Investors should assess the merits of FLT but also take note of the risks and negative aspects of the REIT before they invest in it. Some of the risks include a slump in the industrial sector in the three countries which FLT is in, which may crimp demand for industrial space, causing occupancy rates to fall. One negative aspect is that rental reversions for their Australian properties are mostly negative, as market rents are lower than the previous locked-in rental rate.
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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 Royston Yang owns shares in Frasers Logistics And Industrial Trust.