What You Should Know About Frasers Logistics & Industrial Trust (SGX: BUOU) Right Now
Sudhan P●
Frasers Logistics & Industrial Trust‘s (SGX: BUOU) share price (technically known as unit price for REITs) stands at S$1.23 at the time of writing.
At that unit price, Frasers Logistics & Industrial Trust’s price-to-book (PB) ratio is above 1x, and it has a distribution yield of 5.7%.
Is Frasers Logistics & Industrial Trust a buy in my books at its current valuation?
Let’s explore using my 10-step guide to pick the best Singapore REITs.
As a summary, here are the 10 steps I use to pick the best Singapore REITs:
- Growth in Gross Revenue and Net Property Income
- Growth in Distribution Per Unit
- Property Yield of Between 5% and 9%
- Gearing Ratio of Below 40%
- Interest Coverage Ratio of Above 5x
- Healthy Portfolio Occupancy Rate
- Positive Rental Reversions
- Presence of Growth Prospects
- Acceptable Price-to-Book Ratio
- Distribution Yield of Above 5%
Business Background
Before we dive into analysing Frasers Logistics & Industrial Trust, let’s find out what its business is about.
Frasers Logistics & Industrial Trust is a REIT that invests in properties mainly used for logistics or industrial purposes.
Right now, its portfolio comprises 91 logistics and industrial properties located in Australia, Germany and the Netherlands.
As of 30 September 2019, Frasers Logistics & Industrial Trust’s total portfolio value stood at A$3.6 billion.
Frasers Logistics & Industrial Trust’s tenants are also well-diversified, with the top 10 tenants only taking up around 28% of gross rental income.
Frasers Logistics & Industrial Trust was listed on the Singapore stock market in June 2016 at a price of S$0.89 per unit.
Frasers Logistics & Industrial Trust’s sponsor, Frasers Property Ltd (SGX: TQ5), has an approximately 20% stake in the REIT.
1. Gross Revenue and Net Property Income (NPI) Check
Check for: Increasing gross revenue and NPI
Frasers Logistics & Industrial Trust has a financial year that ends on 30 September each year.
From FY2017 to FY2019, the REIT’s gross revenue and net property income have shown strong growth:
| FY2017 | FY2018 | FY2019 | Compound Annual Growth Rate (CAGR) | |
|---|---|---|---|---|
| Gross revenue (A$' million) | 163.1 | 195.8 | 240.8 | 21.5% |
| Net property income (A$' million) | 134.0 | 161.8 | 199.4 | 22.0% |
Frasers Logistics & Industrial Trust’s gross revenue improved from A$163.1 million in FY2017 to A$240.8 million in FY2019 while its NPI grew from A$134.0 million to A$199.4 million during the same time frame.
The massive growth in the figures is mainly due to new acquisitions by the REIT.
Verdict: Pass
2. Distribution Per Unit (DPU) Check
Check for: Increasing DPU
In Australian dollar terms, Frasers Logistics & Industrial Trust’s DPU has climbed by around 2% per annum from FY2017 to FY2019.
However, when converted to Singapore dollar terms, Frasers Logistics & Industrial Trust’s DPU has not grown.
| FY2017 | FY2018 | FY2019 | CAGR | |
|---|---|---|---|---|
| Distribution per unit (Australian cents) | 6.99 | 6.94 | 7.27 | 2.0% |
| Distribution per unit (Singapore cents) | 7.01 | 7.19 | 7.00 | -0.1% |
Unitholders have the option to receive the distributions in Singapore or Australian dollars. Since I prefer to receive DPU in Singapore dollars, Frasers Logistics & Industrial Trust has failed in the DPU-front.
Verdict: Fail
3. Property Yield Check
Check for: Property yield of between 5% and 9%
For FY2019, Frasers Logistics & Industrial Trust had an NPI of A$199.4 million and a portfolio value of around A$3.6 billion. This translates to a property yield of 5.5%, which is within the range I’m looking for.
Verdict: Pass
4. Gearing Ratio Check
Check for: Gearing ratio below 40%
As of 30 September 2019, Frasers Logistics & Industrial Trust had a gearing ratio (also known as aggregate leverage) of 33.4%, well below 40%.
Verdict: Pass
5. Interest Coverage Ratio Check
Check for: Interest coverage ratio above 5 times
Frasers Logistics & Industrial Trust’s interest coverage ratio stood at 9.3 times at end-September 2019, which is more than 5x.
Verdict: Pass
6. Portfolio Occupancy Rate Check
Check for: Healthy portfolio occupancy rate
Frasers Logistics & Industrial Trust has a strong portfolio occupancy rate of almost 100%.
To be exact, the rate was 99.6%, as of 30 September 2019, with the Australian properties as a whole having 99.4% occupancy and the European assets being fully occupied.
Verdict: Pass
7. Rental Reversion Check
Check for: Positive rental reversions
For the year ended 30 September 2019, the average rental reversion was -3.2%, which is concerning.
Verdict: Fail
8. Growth Prospects Check
There’s a healthy demand for Frasers Logistics & Industrial Trust’s industrial and logistics assets mainly due to growth in the e-commerce space. That could bode well for the REIT over the long-term.
In terms of inorganic growth, Frasers Logistics & Industrial Trust has the right-of-first-refusal (ROFR) to acquire properties from its sponsor. With a healthy gearing ratio of around 33%, the REIT can certainly look into gearing up to acquire new properties.
Organically, Frasers Logistics & Industrial Trust’s gross revenue can grow with built-in rental escalations (you may refer to “Average Annual Rental Increment” under the first image of the header “Business Background”).
Also, the proposed merger between Frasers Logistics & Industrial Trust and Frasers Commercial Trust would bring plenty of benefits for Frasers Logistics & Industrial Trust.
Verdict: Pass
9. Price-to-Book Ratio Check
Check for: Acceptable price-to-book ratio
At Frasers Logistics & Industrial Trust’s unit price of S$1.23, it is valued at a PB ratio of 1.3x.
Since listing, its average PB ratio stood at around 1.2x.
Frasers Logistics & Industrial Trust certainly looks overvalued to me right now.
Verdict: Fail
10. Distribution Yield Check
Check for: Distribution yield to be above 5%
At Frasers Logistics & Industrial Trust’s unit price of S$1.23, it has a distribution yield of 5.7%, which is above my threshold of 5%.
Verdict: Pass
The Final Verdict
Frasers Logistics & Industrial Trust has a final score of 7/10.
Although the REIT looks interesting with its healthy balance sheet, high property occupancy rate, and strong growth prospects, I’ll skip investing in Frasers Logistics & Industrial Trust due to its lack of growth in DPU (in Singapore dollar terms) since listing.
I might reconsider my stance as I get more clarity about the REIT in the future.
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Stock Discussion on Frasers Logistics & Industrial Trust
Disclaimer: The information provided by Seedly serves as an educational piece and is not intended to be personalised investment advice. Readers should always do their own due diligence and consider their financial goals before investing in any stock.
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