Should You Invest In Frasers Logistics & Commercial Trust [Fundamental Analysis]

In this article, we'll be conducting a fundamental analysis of Frasers Logistics & Commercial Trust and its suitability to achieve the following investment objective: To deliver a stable dividend yield of 5% to 6% per year while having a high degree of capital preservation ability.

Information Is Accurate Up To Nov 2023

Business Description

Frasers Logistics & Commercial Trust is an industrial and commercial REIT that was formed in 2020 as a result of the merger of Frasers Logistic Trust and Frasers Commercial Trust. The combined trust owns 107 properties (99 Logistics & Industrial properties and 8 Offices/Business Parks).

What I Like About Frasers LCT:

The majority of the properties are either freehold or have a long-remaining land lease of over 75 years.
Logistics and industrial properties are resilient and have high WALE
High levels of interest cover ratio and low cost of borrowing
Tenant base is well diversified and is in resilient sectors/industries

What I Do Not Like About Frasers LCT:

Exposure to foreign currencies, while inevitable, is a cause of concern, especially given the strength of the SGD against AUD & EUR.
Foreign offices and business park exposure, if any, is a drag to the overall performance (IMO the merger was a mistake but it is what it is).
The management does employ financial engineering to artificially make the dividend yield higher than the actual operating yield. Investors should not use the headline dividend yield for the decision-making process.

Updates From Recent Performance (FY2023)

General Comments:

Positive Headwinds:

Australia’s industrial space is resilient and a near zero vacancy situation is expected to maintain rental growth.

Negative Headwinds:

Australia’s office space is expected to worsen as the government pumps more properties into an already oversupplied market.
Cost of Debt is expected to increase further beyond FY2024 as around 52% of the debt is due to renewal in the late half of 2024 (26%) and 2025 (26%). The interest rate environment then, is expected to be unfavorable as rates would have just peaked and are still high.

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Daniel is a Licensed Independent Financial Consultant with MAS and a Certified Financial Planner (CFP®).

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