1. How has the portfolio of Frasers Logistics & Commercial Trust (FLCT) evolved since IPO?
Frasers Logistics & Commercial Trust (FLCT) has a portfolio comprising 100 logistics and commercial properties worth $6.2 billion, diversified across five major developed countries — Australia, Germany, Singapore, the UK and the Netherlands — from an initial 51 prime logistics & industrial properties worth $1.6 billion in Australia. With strong connectivity to key infrastructure, FLCT’s modern portfolio consists predominantly of freehold and long leasehold land tenure assets with a well-diversified tenant base.
Our continued strong performance and growth has been made possible through active asset management, financial discipline, and executing value-accretive transactions. Since IPO, FLCT’s portfolio value has grown almost four times, with our acquisition strategy underscored by the support of our sponsor, Frasers Property, which has provided FLCT with a right of first refusal (ROFR) over its income-producing industrial properties globally and commercial properties in Asia Pacific and Europe.
2. FLCT has been using asset acquisitions to grow its portfolio, the most recent ones in Australia and the UK. Could you elaborate on the strategy in this move?
In reviewing acquisition opportunities, we consider the returns (including yield accretion) and if the properties are a strategic fit with our existing portfolio i.e. being well-located, high-quality and modern industrial and commercial properties that are well-occupied by quality tenants.
Our recent acquisitions in Melbourne’s Braeside Industrial Estate and Maxis Business Park in UK’s Thames Valley are testament to this selection criteria. Apart from being DPU-accretive, both properties are modern, 100%-occupied with strong tenants and have excellent connectivity to major motorways.
3. How has Frasers Logistics & Industrial Trust’s merger with Frasers Commercial Trust enhanced the enlarged vehicle’s positioning and performance?
The merger was completed in April and created FLCT, a top-10 S-REIT with a market capitalisation of over $4.4 billion and an established foothold in five countries, delivering DPU accretion and growth. It also provides a broadened investment mandate expanding from the logistics and industrial sector, to encompass office & business parks, CBD commercial sectors, and an enlarged ROFR pipeline worth in excess of $5 billion.
The merger increased FLCT’s representation in the FTSE EPRA/NAREIT Developed index, a leading benchmark real-estate index, and improved its trading liquidity. Along with the REIT Manager’s active portfolio management strategies, FLCT achieved in FY2020 a 1.7% growth in full-year DPU to 7.12 Singapore cents amidst the Covid-19 pandemic, and a 19.6% uplift in NAV per unit to $1.10 as at Sept 30.
4. Describe FLCT’s portfolio tenant mix. What would you maintain or change in terms of this mix?
FLCT has a high-quality tenant base and no single tenant accounts for more than 4.7% of our portfolio income. From a sectoral viewpoint, our logistics & industrial properties have significant weighting to third-party logistics/ distribution and/or consumer products space at 41.4% of our portfolio income. Our commercial tenancies are well diversified with IT products & services, government and related entities, and insurance & financial services forming our top three clusters at 17.5% of our portfolio income. Of our logistics & industrial tenancies, 31.4%are involved in e-commerce/e-fulfilment, which has seen accelerated growth during the Covid-19 pandemic.
5. How have your key logistics & industrial markets — Australia, Germany, Netherlands — performed so far and what is your outlook for these markets?
The logistics & industrial sector has been resilient during the pandemic. Our logistics and industrial portfolio maintained a 100% occupancy rate as at Sept 30. We believe that the Australian market remains one of the most resilient and sought-after sectors by investors, underpinned by strong property fundamentals, low vacancies, limited speculative development activity, and relatively strong occupier demand.
Both the German and Dutch markets have also exhibited strong resilience over the year. We believe e-commerce will continue to support the demand for fulfilment centres and third-party logistics requirements, which is a driver for logistics & industrial asset demand, especially in Germany which is experiencing a positive demand/supply imbalance due to a short supply of well-located quality properties.
For more stories about where the money flows, click here for our Capital section
6. What is FLCT’s approach towards managing foreign exchange risk?
FLCT derives over 80% of its income from properties in Australia, Germany, the UK and the Netherlands, while delivering distributions to unitholders in the Singapore dollar. We actively monitor and manage FLCT’s exposure to major currencies such as the AUD, EUR and GBP. On the distribution level, we manage foreign exchange volatility on our distributable income with hedging instruments and target to hedge distributions on a rolling six-month basis. On the balance sheet level, we manage foreign exchange risks through natural hedges (i.e. through the use of same currency borrowings), or if in a different currency, swapped, as a partial hedge to fund our investments, serving as a natural currency hedge.
7. As an industrial and commercial landlord, what differentiates FLCT from its competition?
We believe that the quality of our assets, the ability to leverage our Sponsor’s integrated development and asset management platform, and our focus on building long-lasting relationships with our tenants set us apart. We place priority on our tenants’ requirements and are thus able to strengthen the appeal of our properties and enhance our property management services.
Our ability to retain existing tenants and attract new ones, having completed approximately 268,000 sq m in leasing representing 10.5% of our total portfolio gross lettable area amid this pandemic period, further demonstrates the strong branding and service level we have achieved across our markets. In addition, with 37 out of the 64 leasing deals this year being a renewal of tenancy, the tenant retention rate in FY2020 on a lettable area basis was high at approximately 88.7%.
8. What are the key focus areas for FLCT in the next 3–5 years?
We aspire to be the REIT of choice for investors and the preferred landlord for occupiers. Our key priority is to ensure that our assets continue to maintain high levels of occupancies and are well-sought after by tenants. Where feasible, we may also seek to undertake selective development or asset enhancement opportunities.
Strategic asset acquisitions will also remain a key focus for us and we continually evaluate investment opportunities, focusing on our key markets. FLCT has a proven track record in executing value-accretive acquisitions, having added over $4.4 billion worth of assets to our portfolio to-date by leveraging our Sponsor’s ROFR and development pipeline. We have also actively rebalanced our portfolio, executing around $407.5 million in selective divestments of assets since our IPO, all at premiums to book values.
Another key priority for us is to actively monitor any financial implications arising from the Covid-19 pandemic, and we will continue to work closely with our tenants in each market to overcome this together.
9. Sustainability and Environmental, Social and Governance (ESG) have increasingly been a key focus; how is FLCT committed to sustainability and how has it benefitted the REIT?
Sustainability and ESG are at the core of FLCT’s business since inception in 2016 and we believe they are important in creating long-term value for all stakeholders. We recognise that properties with higher sustainability performance will reduce our environmental footprint and deliver benefits for our stakeholders. We have put in place established strategies and clear targets to green our portfolio and enhance our ESG performance.
Our progressive efforts on sustainability have allowed us to attract and retain multinational companies and local firms that are placing greater emphasis on environmental sustainability and have enabled us to secure $660 million in sustainability-linked financing in FY2020, with some margin reduction features tied to sustainability benchmarks.
10. What is FLCT’s value proposition to its shareholders and potential investors?
We believe that FLCT offers investors an opportunity to participate in the performance and growth of a high quality and resilient portfolio of 100 logistics & commercial properties spanning five developed countries.We also have a proven track record of executing value accretive transactions, having over tripled FLCT’s portfolio through value-adding acquisitions since our IPO. We see additional scope for growth in our core markets and will endeavour to further our track record of value creation for our unitholders through an active review of our sponsor’s pipeline, as well as via third party opportunities and/or undertaking selective development activities.
