Dear Smart Investor,
We trust you had an enjoyable time voting for our second stock poll.
The first round centred on COVID winners, and the company that received the most votes was Keppel DC REIT (SGX: AJBU).
The second round pit two property moguls against each other — Frasers Logistics & Commercial Trust (SGX: BUOU), or FLCT, and PropNex Ltd (SGX: OYY).
Which business do you prefer?
A REIT that collects rental from industrial properties?
Or a property agency that helps Singaporeans find your next home?
After another round of votes, we know who you all preferred: FLCT as the winner!
The REIT owns a portfolio of 97 industrial and commercial properties spanning five developed markets — Australia, Germany, Singapore, the UK and the Netherlands.
Assets under management (AUM) stood at S$6.3 billion as of 31 March 2021.
The REIT’s sponsor is Frasers Property Limited (SGX: TQ5), or FPL, a property developer with total assets of around S$38.7 billion as of 30 September 2020.
FLCT’s strong sponsor, along with its portfolio of industrial assets, are the main reasons why the REIT has held up well during this pandemic.
Let’s have a look at a few other aspects of the REIT.
A merger and index inclusion
FLCT started as Frasers Logistics and Industrial Trust (FLT) back when it listed on 20 June 2016.
The managers of both Frasers Commercial Trust (FCOT) and FLT then proposed a merger back in April 2019 by way of a Trust Scheme to create a larger and more diversified REIT.
A year later, the merger was completed, resulting in the name change from FLT to FLCT and creating a REIT with an AUM of S$5.9 billion.
A few months ago in April 2021, FLCT was included in the Straits Times Index (SGX: ^STI), further elevating the REIT’s profile among investors.
Strong fundamentals
Post-merger, FLCT has continued to do well.
The industrial REIT’s portfolio enjoyed high occupancy of 96.8% as of 31 March 2021 and had a long weighted average lease expiry (WALE) of 4.7 years.
The REIT also boasts a high-quality tenant base with no single tenant accounting for more than 5.1% of gross rental income.
For its fiscal 2021 half year ended 31 March 2021 (1H2021), FLCT reported a 95% year on year surge in revenue to S$231.7 million.
Adjusted net property income jumped by 79.3% year on year to S$173.9 million.
The increases were mainly due to the aforementioned merger with FCOT.
Distribution per unit (DPU) climbed by 9.5% year on year to S$0.038.
Annualised DPU is S$0.076 and the REIT’s units offer a prospective dividend yield of around 5.1% at the last traded price of S$1.50.
Active asset recycling
The REIT manager has been engaging in active asset recycling to maximise value for unitholders.
FLCT periodically acquires and divests properties to enhance its portfolio.
Back in December 2020, the REIT divested three leasehold properties in South Australia for A$29.6 million. The sale was a 19.4% premium to the properties’ book value.
Two months ago in May, FLCT announced the acquisition of six freehold properties in Germany, the UK and the Netherlands.
The total purchase price was S$548.7 million and the acquisitions will increase both DPU and the REIT’s net asset value.
Post-acquisition, the REIT’s gearing will stand at 36.2%, which offers significant headroom for the REIT to take on more debt for future acquisitions.
The right-of-first-refusal
FLCT still has significant potential for growth.
It has access to a diversified pipeline of properties from its sponsor, FPL, worth more than S$5 billion.
What’s more, the REIT also has a right of first refusal (ROFR) on these properties.
The ROFR means that FPL has to sell any of its properties to FLCT and can only approach external parties should the REIT refuse to purchase them.
The pipeline consists of around two million square metres of properties, with three-quarters in the logistics and industrial sector.
The bulk of the properties are located in Australia (~37%), followed by Germany (~27%) and the UK (~24%).
Get Smart: Well-managed with growth potential
FLCT is a professionally managed REIT with a reputable sponsor.
Its active asset recycling efforts have resulted in divestments above book value and acquisitions that boosted DPU over the years.
With moderate levels of gearing, the REIT remains open to acquiring more assets over time to grow its portfolio.
Its sponsor’s significant pipeline of properties allows FLCT a convenient method of growing its portfolio over time.
It’s Fight Night on 29 July…and you’re invited! Crowd favourites, Keppel DC REIT (SGX: AJBU), Frasers Logistics & Commercial Trust (SGX: BUOU), and DBS (SGX: D05) will fight to the end for the title of “Champion of Dividends.” Be the first to find out who wins in this 3-way mayhem on the 29 July. We’ll host a webinar, and together we’ll analyse each contender’s strengths, weaknesses, and potential. To reserve a front-row ticket to this royal rumble, click HERE now.
Disclaimer: Royston Yang owns shares of Frasers Logistics & Commercial Trust.
