By Ian Tai
Frasers Logistics & Industrial Trust (FLT) was recently listed on the Singapore Exchange (SGX) on 20 June 2016. It is the first SGX-listed REIT that invests solely in industrial properties located in major cities in Australia. In this article, we cover FLT’s development over a period of 17 months after its listing, the potential risks it faces, and discuss its plans towards the immediate future.
Here are the 12 things you need to know about FLT before you invest.
1. FLT was listed with an initial portfolio of 51 properties worth AUD1.58 billion.
The average age of FLT’s portfolio is relatively young at 6.1 years. 90.2 percent of its portfolio is freehold assets or leasehold assets with long remaining tenures of at least 80 years. 96.5 percent of its portfolio is located in Melbourne, Sydney, and Brisbane which are well-connected to highways, shipping ports, and airports.
2. On 31 August 2016, FLT announced the acquisition of two assets — the Indian Drive Property in Melbourne and the Pearson Road Property in Brisbane for AUD69.2 million.
The Indian Drive Property is fully leased to Astral Pool Australia Pty Ltd for a term of 15 years. Meanwhile, the Pearson Road Property is fully leased to ACI Operations Pty Ltd for six years.
3. On 30 November 2016, FLT announced the acquisition of the Martin Brower Property in Sydney for AUD58.2 million.
This property is fully leased to Martin-Brower Australia Pty Ltd for a term of 20 years.
4. On 6 June 2017, FLT announced the acquisition of seven properties for a total sum of AUD169.3 million.
Four of these properties are completed and fully leased. They are the Yusen Logistics Facility and the Survitec & Phoenix Facility in New South Wales, and the CEVA Tech Facility and the Ecolab Facility in Victoria. Meanwhile, the remaining three properties are still under development and are pre-committed by incoming tenants. They are the Stanley Black & Decker Facility and the Clifford Hallam Facility in Victoria, and the Beaulieu Facility in Queensland. Thus, FLT has enlarged its portfolio to 61 properties.
|Jun 2016||Sep 2016||Dec 2016||Mar 2017||Jun 2017||Sep 2017|
|Number of properties||51||53||54||54||54||61|
5. FLT achieved growth in gross revenues and distributable income over the last 12 months.
Gross revenues have grown from $39.7 million in 1Q17 (the quarter ended 31 December 2016) to $42.2 million in Q4 2017. Distributable income increased from $22.9 million in 1Q17 to $26.5 million in 4Q17.
6. FLT declared 7.01 cents in distribution per unit (DPU) over the last 12 months.
As at 1 December 2017, FLT is trading at $1.10 a share. If FLT is able to maintain its DPU, its expected gross dividend yield is 6.4 percent.
Here is a question: how do we assess if FLT is capable of delivering sustainable growth in gross revenues and distributable income to unitholders in the future?
For REITs, it is pretty simple. I look at four basic factors such as recent purchase of investment properties (covered above), its tenant base and occupancy rates, its lease expiry profile, and the strength of its sponsor.
The findings are:
7. As at 30 September 2017, FLT is enjoying a 99.4 percent occupancy rate for its portfolio.
Presently, it derives income from 68 tenants and its top 10 tenants account for 42 percent of FLT’s gross rental income (GRI). Coles is FLT’s single largest and only tenant that accounts for more than 10 percent of its GRI currently. This indicates that FLT is not substantially reliant on a single tenant or a single piece of property for its source of income.
|Top 10 tenants||% of GRI|
Source: FLT’s Results Presentation 2 November 2017
8. As of 30 September 2017, 86.5 percent of FLT’s leases will expire starting in FY20.
This includes new leases or lease renewals for three properties over the last three months. They include 170-172 Atlantic Drive and 17 Pacific Drive at Keysborough, Victoria until June 2021, Unit H of 5 Butler Boulevard at Adelaide Airport until January 2021, and 96-106 Link Road at Melbourne Airport until June 2026. Up to 2025, there is no single financial year that has more than 17 percent of leases expiring. This provides income stability to FLT over the next decade.
9. FLT faces the risk of automatic lease termination of 10 properties which are situated in the Melbourne Airport, the Adelaide Airport, and the Perth Airport.
The Airport Ground Leases are subjected to the Airports Act 1996 and the Airports (Transitional) Act 1996, collectively known as the Airport Acts. According to the Airport Acts, one of the requirement is that the Airport Ground Leases will terminate automatically in favour of a party that is in a position to exercise control over the whole or substantial part of the relevant properties. If one of the 10 Airport Ground Leases is terminated, it would negatively affect the financial results of FLT. At present, these properties include:
|Frasers Logistics & Industrial Trust Airport Properties||Airport|
|115 – 121 South Centre Road||Melbourne|
|96 – 106 Link Road||Melbourne|
|17 – 23 Jets Court||Melbourne|
|25 – 29 Jets Court||Melbourne|
|28 – 32 Sky Road East||Melbourne|
|38 – 52 Sky Road East||Melbourne|
|60 Paltridge Road||Perth|
|5 Butler Boulevard||Adelaide|
|18 – 20 Butler Boulevard||Adelaide|
|20 – 22 Butler Boulevard||Adelaide|
10. As at 30 September 2017, FLT has total gross borrowings of AUD580 million. Its average cost of borrowings is 2.8 percent per annum.
Presently, FLT has a gearing ratio of 29.3 percent and has an available debt headroom of AUD563 million before hitting the 45 percent gearing limit. As such, FLT has an option to finance acquisitions for future growth.
11. FLT is sponsored by Frasers Centrepoint Ltd (FCL), an international real estate corporation listed on the SGX.
Besides FLT, Frasers Centrepoint Ltd sponsors three other SGX-listed REITs — Frasers Centrepoint Trust, Frasers Commercial Trust and Frasers Hospitality Trust. As such, Frasers Centrepoint has built a strong track record in managing and growing listed real estate funds. As I write, Frasers Centrepoint is a major shareholder of FLT with a 20.28 percent shareholding.
12. Frasers Centrepoint also has a wholly-owned subsidiary known as Frasers Property Australia (FPA).
FPA developed all of FLT’s properties and is one of the leading property groups in Australia. From 2016 to 2020, FPA has a property development pipeline of AUD850 million which FLT enjoys the rights of first refusal. This provides potential growth from future potential acquisitions for FLT.
The Fifth Perspective
17 months into its listing, FLT has enlarged its property portfolio and achieved marginal growth in gross revenues and distributable income to unitholders. FLT has built a sustainable portfolio where it does not rely on a single property or a single tenant for substantial income and has a long and stable lease expiry profile.
Moving ahead, FLT intends to deliver stable, regular and growth in DPU. This is to be achieved from built-in rental increments and positive rental reversions of existing properties and by adopting a combination of strategies such as proactive leasing initiatives, asset enhancement initiatives, selective redevelopment of existing assets, and acquisitions of good quality industrial properties in the future.