January 24

2024 AGM Review: Frasers Logistics & Commercial trust share price

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I always walk away from the Frasers Logistics and Commercial Trust (FLCT) Annual General Meetings slightly amazed at the disparity between the board, and the shareholders.

On one hand, you have a board that’s very well managed.

But then you have shareholders who are slightly more interested in the food, than the intellectual buffet available in the board.

That Tuesday afternoon, I saw the worst of Singaporeans as we had shareholders jostling for the food, as tray after tray of refills were brought out.

Shareholders were stabbing the paos with their fork, and some were whispering to me that I could use my fork too.

As if it made a difference.

Within 4 minutes of the tray being brought out, you had shareholders carrying full plates of paos, sandwiches, and anything they could bring away.

You even had shareholders taking little boxes to take home.

It did make for a very sorry end to what was actually an interesting shareholders’ meeting.

I share this because I want to make it known that the quality of the shareholders, doesn’t genuinely reflect the quality of the management.

Let’s start with the elephant in the room.

Does Anthea have her work cut out?

I had a separate conversation with another shareholder after the AGM, about what he thought about Anthea.

Interestingly, he said that she was surprisingly big picture and didn’t seem too sure about her numbers.

Is it to be expected of Anthea, given that she only moved from Keppel Data Centre REIT in August 2023?

Here’s what I saw, and subsequently thought.

The current commercial property markets they occupy, and the accompanying outlook

Questions were asked about the wider strategy of FLCT, given that it was largely concentrated in markets where there seemed to be structural decline.

The example was raised of the U.K. Commercial Properties they held, which had a mediocre occupancy that ranged between 77% to 83%.

Anthea pointed out that they were still optimistic about the developed markets they were in.

And she pointed out that unlike other REITs, they were the only REIT that was focused on the developed markets. They were not in any emerging markets, which gave them the confidence to pursue acquisitions knowing that there would be the full rule of law and transparency backing them.

Mr Hon, the Chairman of the Board, also observed that these developed markets had strong governance structures that allowed them to make acquisitions and divestments with confidence, given that the markets were already experienced with real estate transactions.

Future acquisitions

What their growth seems to look like
What their growth seems to look like

I asked the question on whether the Board could guide where these future opportunities lay, and more specifically whether they could shed color on what those logistics and industrial properties (L&I) looked like in new markets like Japan and Singapore.

Firstly, Anthea shared that they see data centres as an industrial asset class that could complement their portfolio.

But again, I’m not sure if it’s more Anthea, given her background at Keppel DC.

Here there was one question that came top of mind. When replacing Rob, the previous CEO, did Frasers go specifically looking at a CEO with data centre experience, or was Anthea just one of the few CEOs available that could take over?

It’s an interesting question.

Because when we met at AGM 2023, there was no mention of moving into data centres, and Rob was talking highly about the attractiveness of the logistics asset class in Australia.

Portfolio growth

There are two ways that Anthea mentioned in her Annual Report and later during the SGX Announcement on Substantial Questions around growth strategies.

Growth by markets

One was around the growth via different markets.

Here, I asked whether they would be adopting a similar ‘wait and see’ approach to the rising interest rate environment (then in 2023 January) as espoused by Rob, during his tenure.

Anthea was clear that they would not, and they were actively evaluating opportunities that appeared.

But the question then comes, in these new developed markets they are exploring Japan and Singapore, are they sufficiently well versed in these markets?

It’s not just a question of buying a property in fancy Tokyo, but about running, leasing it out, and ensuring that customers are happy.

And from FLCT’s, and more widely, Frasers’ history, there doesn’t seem to be that track record of experience in Japan.

On 23 May 2023, Frasers Hospitality announced its maiden acquisitions in premium rental apartment segment in China and Japan.

Here the key word is ‘maiden’.

So they are new to the Japan market.

Nothing against them, but it might just take time for them to build out a team that can actively build out a significant revenue driver in Japan.

Growth into adjacent asset classes

Of course the other way is through data centres, which Anthea is well experienced in.

How this will balance between di-worsification, and a stronger growth in revenue, remains to be seen.

Debt profiles

Tricia, the Chief Financial Officer, guided that during the refinancing they were seeking for the debts due in the second half of 2024, they would likely see the cost of debt increase by a few basis points, but not beyond 3%.

But you also have to be careful of the note they added. Every 0.5% rise in interest rates is likely to cost 0.06 cents in DPU payouts (0.85% of the DPU paid out in 2023).

It’s the first time I’m seeing them calculate this so accurately, and it may bear some noting.

People don’t put this in their annual CEO presentations for nothing.

But Tricia is smart. Amongst the S-REIT peers, FLCT has one of the lowest gearings, and also one of the lowest cost of borrowings.

When I asked her where the Cross Street Exchange sale monies went (of which there was a lumpy $810m), she shared how much of it was used to pare down the most expensive debt.

Compare this to where Anthea came from at Keppel DC REIT, and they already reported in their October 2023 Q3 report that this was significantly higher at 37.2%.

They have a strong balance sheet…. But what are they doing with it?

For now, they are not.

But if you look at Anthea’s track record at Keppel DC REIT, where she 3.7x the Assets Under Management, this is one dealmaker who’s extremely aggressive in the market.

She knows how to look at deals, and push them through to completion.

But whether that will fit the more conservative culture at Frasers, does remain to be seen.

At this price, would you take the REIT?

I would, primarily because of how well it’s positioned debt-wise, and how they have brought in a new acquisition-hungry CEO.

I think they are in a good position.

 


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