Saturday, September 10, 2022

Frasers Logistics and Commercial Trust: Update for Europe Energy Crisis

One tenth of my net worth is in Frasers Logistics and Commercial Trust - one third of their properties are in Europe - and Europe is fucked.  I need to see how they will be affected by both inflation and a recession.

Quick overview of FCLT:

  • 105 properties: mostly industrial, logistics or business parks.  3 or 4 are office buildings.  2/3rds are freehold.
  • Half the property in Australia, 23% in Germany, 20% in the UK.
  • 30% leverage
  • Like all SGX REITs, they payout all their cashflows as dividends and never pay down debt.  So they need to borrow or issue new shares every time they acquire.
FCLT is unique in that they provide a list of tenants for most of their properties in their Annual Report (pp57-69).  I go through the list to guess how they will be affected.  All numbers are from 2021.

Germany and The Netherlands

Energy Crisis

I'm most worried about these countries (28% of properties by asset value).  German industry will suffer permanently as they convert from cheap Russian piped gas to expensive shipped LNG.  Energy or gas intensive industries will have to shut down.  Heavy industry could move out, and the country may need a new economic model.

I try to categorise their tenants: I think anyone who is a heavy manufacturer, equipment manufacturer, or in the chemical industry is risky:

I estimate that 36% of their German/Dutch revenue is at risk.  These guys probably have to cut production if there are energy shortages, in the next 1 or 2 years, and then after that adapt to a permanently higher energy price. Don't know how that affects their businesses or rental payments.


Soaring energy costs will cause inflation (probably with rapid depreciation of the Euro/Pound).  How well is FCLT protected from this?   "The majority of the REIT's European logistics and industrial leases benefit from CPI linked inflation" (p42).

The UK

The UK only had one industrial building, with small revenue.  Lounge Underwear is a tenant:

(This work is so boring I had to include that photo).

Business parks should nopt be affected by the energy crisis, as they don't manufacture things.  

Commercial (non-industrial) leases in the UK are "usually marked-to-market on lease renewals".  So no inflation protection.


I think Australian industry will have a recession - the first in 27 years, but not an energy crisis.  Since so little is manufactured there anyway, industry won't be affected.  Not worried about the recession, since its a normal part of business.

Ceva Logistics (2% of Total Gross Revenue) and WeWork (0.7%) look weak.  The rest I can't tell.

FCLT's "logistics and industrial leases generally have fixed annual increments averaging 3.1%", while "commercial leases in Australia generally have fixed increments averaging 3.3%."


I estimate:

  • 36% of their German/Dutch revenue is at risk from the energy crisis, or 8.1% of total gross revenue.
  • Add another 2.7% revenue at risk from risky companies (Ceva Logistics and WeWork)
  • There may be some more recession casualties.  Lets just guess 5%.

Even if *all* 16% of this revenue was lost, the company would survive without raising capital.  Dividends would drop by 27%.  This is a worst case scenario, its not a realistic one.

The bigger risk for a Singapore investor is that SGD will rise against the AUD, EUR and Pound.  Especially for or the latter two, governments will print to help sooth over their energy problems.

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