At a 8% dividend yield, Frasers Logistics & Commercial Trust (FLCT) is also one of the largest REITs focused in the logistics and industrial sectors.
It was listed on the Singapore stock exchange in 2016. Later on 2019, it merged with Frasers Commercial Trust. This Singapore REIT giant wanted to expand its portfolio across different sectors, including commercial office and business parks.
With a market cap of S$2.9 billion, this is a Top 10 Singapore REIT.
Yet shares have traded lower than the market cap before the merger.
Is this a value trap, or is there opportunity here? Let’s dive in!
What’s driving FLCT’s dividends?
At first glance, FLCT’s financials may not look that bad.
I compared its latest 1HFY2025 results against the previous year: Net property income grew higher by 1.6%. And FLCT had higher rental income for all its properties.
However, the problem is financing costs. You see, Singapore REITs are financing vehicles.
They borrow money to invest in higher-yielding properties. When interest rates went up, FLCT got hit with a 35% increase in finance costs. Not great.
What’s interesting was this: Total distributable income fell when ~56% of management fees got paid in cash. In the previous year, management fees were fully paid in units, which helped buffer from the higher interest rate environment last year. This left more cash to be paid to unitholders overall.
Credit: FLCT’s financial statements
Since 2021, FLCT’s DPU has been dropping.
FLCT’s net asset value also shrunk by more than 20% to S$1.08 since it last peaked in 2023.
Credit: Singapore REITs’ financial statements
One of the reasons why FLCT’s NAV is shrinking is because it has been divesting assets. When FLCT sold Cross Street Exchange, unitholders got a special distribution.
But lacked any future recurring rental income from that asset.
The other reason that FLCT’s NAV is shrinking is because of currency translation.
Most of FLCT’s properties aren’t in Singapore. When SGD strengthens, overseas rental income suffers from foreign exchange losses. This exposes unitholders to foreign exchange fluctuations.
Let’s break down FLCT’s portfolio performance
Let’s kick off FLCT’s portfolio. I look at Singapore REIT’s properties from two angles.
The first is its property type. The other is geography.
Now, FLCT has 114 properties with 72% of properties in logistics & industrial. The rest are offices.
Next, ~50% of its property value is concentrated in Australia, with the remaining in Germany, United Kingdom, Netherlands, and Singapore.
The good news is majority of FLCT’s focus areas are performing well – its logistics and industrial properties have a 100% occupancy rate, producing steady rental income.
However, when I looked closer, I realized FLCT has two key properties – Alexandra Technopark and 357 Collins Street– that have dragged down FLCT’s performance.
Both assets accounted for a significant ~13% of FLCT’s portfolio, which have suffered a drop in occupancy.
Alexandra Technoparks’ underperformance was because Google gave up a portion of its tenancy. Progress has been slow. But there’s already been backfilling on the vacant space.
FLCT is divesting 357 Collins Street asset, with occupancy falling from over 80% to 64%. This feels like cutting losses and selling off an underperforming asset that seems to fall outside of FLCT’s focus area.
Market crashes are a good time to pick up bargains. Yet, FLCT chooses to sell when interest rates are still high. I’m not sure if this was indeed the best time to sell, despite selling 357 Collins Street at a premium to book value.
Is FLCT’s dividends sustainable?
At over 8% yield, FLCT stands out as one of the highest dividend payers in Singapore REITs.
However, despite high dividend payouts, FLCT shares have not performed well over the last couple of years.
Over the last five years, shares of FLCT have dropped close to 30%.
That eroded a lot of returns from its dividends. Even from a Price/NAV (or P/B) standpoint, FLCT isn’t very undervalued, and is also above median as well.
When assessing Price/NAV ratios, a lower value is usually better. This is because a lower Price/NAV ratio means you’re paying less for the same asset value. It’s getting more bang for your buck.
FLCT’s risks
As we saw above, FLCT’s portfolio spans across five different countries. Therefore, there are concerns regarding foreign exchange risk, because FLCT’s assets are denominated in AUD, Euro, GBP, and SGD.
This is different from other Singapore REITs such as CICT, whose portfolio is concentrated in Singapore.
Next, the global supply chain is shifting outside of China given US-China geopolitical tensions. This could benefit other countries like Australia, which allow FLCT’s properties to benefit from shifting supply chains – FLCT could have more bargaining power to raise rents, or see its real estate values go up.
FLCT is also exposed to interest rate risk. With Fed’s potential delays in rate cuts, it might take longer for FLCT’s financing costs to drop
My final thoughts
At an 8% dividend yield, FLCT is a tempting buy. Yet, at FLCT’s current Price/NAV ratio, it’s not as undervalued as people may think, since it’s not at a great discount.
What’s more, past distributions were partly supported by FLCT’s asset divestments.
However, DPU continues to fall over the last couple of years. I’m not rushing to buy FLCT, especially because the drop in occupancy rate in two of its major assets could put pressure on shares of FLCT.
Thank you for the well documented report and sharing your views on FLCT. It would be interesting to make a comparison of FLCT and MLT: Both having similar spread outside SG and facing forex issues. Which has a lower valuation and thus a better buy at this point in time. Many thanks.
Hi Sonny,
Thank you for the suggestion. It’s worth exploring both REITs in a blog article in the future 🙂 MLT is facing some FX issues plus higher borrowing costs. Have a look at MIT again, shares have fallen, yield is trading closer to 7% today.
Cheers,
Willie