May 5

Is the FLCT (Frasers Logistics and Commercial Trust) share price worth it?


If there’s one thing I remember from the Frasers Logistics and Commercial Trust’s (FLCT) Annual General Meeting (AGM) in February, it would be this.

In 15 minutes, all the food at the buffet table was gone.

I know.

It’s probably testament to how many shareholders are there for the food, rather than the intellectual buffet with the directors and management in the room.

But here’s why I took the initial position.

The distribution is healthy

If you just look at the distribution above, you would see that the distribution has been consistently healthy over the past few years.

Growth potential?

But speaking to Robert Wallace that day, the CEO of FLCT, made me realise just how smart this management was.

One question that was posed to him was why the Cross Street, a commercial building in Singapore was sold.

He said it wasn’t something they had been looking to sell, but that an offer came to him that he simply couldn’t refuse.

And if you look at the numbers above, the offer was at a premium.

Another question was what would happen to all the cash sitting in the bank. Rob, as he’s affectionately known, said in his Annual Report

The sale of Cross Street Exchange allowed us to optimise our portfolio by re-weighting our asset class mix towards logistics and industrial properties.

This also resulted in enhanced portfolio metrics with a higher overall portfolio occupancy rate and longer WALE.

This does make simple sense.

Commercial buildings are in general harder to lease out because most tenants come in wanting different configurations. Some may want a whole floor, others may just want a room.

But in industrial and logistics properties, they tend to be entirely leased out.

Here’s the comparison for FLCT’s properties.
Here’s the comparison for FLCT’s properties.

But what about the share price?!

Another angry shareholder went to the microphone and talked about how the price had steadily dropped from the $1.43 to the $1.20.

The chairman patiently told her that they had no control over what markets were doing.

But this was where I saw Rob being extremely sharp again.

When I asked him about what his approach was in such a high interest rate environment, he pointed out why the Cross Street Exchange sale had been so important. This had brought down their aggregate leverage to 27.8% one of the lowest in the S-REITs sector.

It also meant they had additional money to pay down debt, and reduce the rising costs of debts.

It means they have firepower to make buys of distressed assets, especially in these volatile times.

How do you make your decision?

If you’re considering whether to buy FLCT, you need to keep certain things in mind.

Firstly, that this is not going to make you rich fast. Very often, when I hear shareholders talking about the share price, I find it hard to understand why they bought it in the first place if they couldn’t stand short-term changes in volatility.

And this is property.

Property doesn’t move like software. You can’t suddenly transact millions of pieces of property, as you could with users.

But what you should look out for are managers, and a management team that does know their stuff.

Rob is certainly one.

During his time he was responsible for leading the Investment Property Division which owned and managed a portfolio of investment properties with an aggregate value of approximately A$2.5 billion.

From Frasers Logistics Trust 2017 Annual Report

From the LinkedIn of Rob
From the LinkedIn of Rob

If you speak to Rob, he doesn’t have the usual airs of what you’d expect from a CEO. He doesn’t pretend that he knows everything or what to do. He doesn’t pretend that he knows the future.

But if you look at how he has shaped the Trust over the years, he has put it to ride on growth trends, that are inevitable in the world.

Looking at the trends in e-commerce, and supply chain security, Rob moved the Trust to focus on industrial and logistics assets.

Seeing the headwinds in the commercial office space, especially with the future of work requiring (at least in developed economies) more work from home, Flexi-work arrangements, he rightly sold off Cross Street Exchange in Singapore, allowing him to allocate that capital to better use.

What role would FLCT play for you?

But you also need to ask yourself what role FLCT will play in your portfolio.

For me, it’s clear. As long as I have moderate capital appreciation above the inflation rate of 4% per year, and a dividend yield of 6%, this stock would have played its role.

FLCT is like a bond, with a long-term, growing coupon.

For me, if we compare the normal stocks to football players on the field, it would be the defender.

Investment is relative to your options

But FLCT is also one of the best-managed REITs in Singapore.

From what I do see, FLCT has not given me the possibility of capital loss, such as at First REIT, where the drastic recapitalisation saw their price erasing 75% in the span of 6 months.

Where I bought First REIT, and where it eventually crashed to.
Where I bought First REIT, and where it eventually crashed to.

And of course, some people may say that there are better options around the world, like the US.

But the beauty of having regular cash flow into your bank account, and not having to withdraw it, is a privilege not many enjoy.

You might just want to consider this stock.



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