REITs Singapore Market

Frasers Logistics and Commercial Trust (FLCT) (SGX:BUOU) 1QFY23 Business Update – My Key Takeaways

Calvin Lo

Quick one to share my brief thoughts since Frasers Logistics and Commercial Trust (FLCT) (SGX:BUOU) is only sharing a business update this quarter. In short, the logistics business is strong but commercial business is a drag especially in the UK. Financial health is impacted slightly by rising interest rates, but still healthy. Stronger SGD was also a headwind since FLCT mostly holds overseas properties. No distribution announced this quarter, due in the next one (FLCT distributes semi-annually).

Despite pandemic tailwinds for the logistics & industrial (L&I) easing, FLCT is still showing resilience. I’m still bullish for now that FLCT can weather a potential recession, but I’m watching UK commercial properties for further signs of weakness which could unravel FLCT’s portfolio.

For more details, read: FLCT sees ‘healthy leasing momentum’ in 1QFY2023

Key takeaways

  1. Strength in logistics and industrial rental especially in Australia
  2. Weakness in commercial business parks in UK
  3. Debt ratio rising but still healthy
Source: FLCT 1QFY23 Business Update slides

Strength in logistics & industrial

L&I had 100% occupancy rate and 2.3% rental reversion. L&I makes up 68.3% of FLCT’s portfolio, mostly in Australia and Germany. In both these markets, industrial rents have been moving higher which is good news.

Weakness in commercial business parks especially in UK

Commercial has 89.8% occupancy rate and 6.8% rental reversion. Most of the occupancy weakness was from UK business parks (Farnborough BP, Maxis BP, and Blythe Valley Park).

The UK economy is not doing well. What worries me further is that all 3 ongoing projects are in the UK, although classified as L&I. Hopefully L&I will continue to perform even in the UK.

Debt ratio rising but still healthy

Debt ratio (or aggregate leverage) increased by 50 bps to 27.9% affecting debt headroom, but still way below the 50% limit set by MAS. Cost of borrowing increased and % of borrowings at fixed rates decreased. Most of FLCT’s debt will also be maturing over the next 3 years, so there’s lots of refinancing coming up and likely to be at higher rates.

Closing thoughts

Since the business combination between Frasers Logistics Trust (FLT) with Frasers Commercial Trust (FCOT) to form FLCT, seems that FCOT has been a drag on the portfolio. I originally bought into FLT and continued to hold shares through the merger. So far this quarter, there are some worrying signs starting to crop up in the Commercial side which I’ll be keeping a close eye on. As long as L&I continues to perform well, I’m not worried and will probably continue to hold.

Disclosure: I’m long FLCT (SGX:BUOU)

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