During the quarter FLCT completed 134,669 sqm of leasing deals in total and achieved +10.6%/-3.9% reversions for its commercial and industrial segments respectively. The rental reversions are calculated as the new gross signing rent divided by the old terminating gross rent. 

I believe that the +12.1% reversions experienced for the 10 leases in Singapore could reflect the lower signing rents that were achieved 3-5 years ago just as the office cycle was picking up. Nonetheless, it is a commendable result especially during the Apr-Jun period which was right in the eye of the Covid-19 storm. 

For industrial rents, the negative reversions could be due to the annual increments from the previous lease being higher than the average market rental growth. Hence any reversions back to market would be a negative one. This was previously the reason cited for the negative reversions for Australian logistics properties by the FLT management. Although we prefer a positive number, I believe that the slight negative is outweighed by the longer lease terms and annual increments that are in-built into these industrial leases vis-a-vis commercial leases with little/no increments.

Portfolio occupancy was 97.2%, which was held up by the strong performance of logistics (99.8%). On the commercial side, only 1 out of 6 properties registered an increase in occupancy. The weaker occupancy is largely expected due to the Covid-19 situation with tenants probably rationalizing their space requirements. Looking ahead, investors can take comfort that upcoming expiries are low (<10% in the next FY). 

FCLT also announced the acquisition and divestment of properties following the quarter-end. It would be divesting its remaining 50% stake in its Cold Storage Facility for S$152.5m and acquiring 2 properties (logistics in Melbourne and business park in the UK) for S$89.9m. The new properties have a WALE of 4.9 and 6.7 years respectively and are both 100% occupied.

As the management mentioned that the transactions are expected to be accretive, I believe that the exit yield on the divestment is lower than that of the purchase yield on the acquisitions. 

Overall, FLCT produced a commendable set of results and continues to undertake transactions even during the pandemic. I like that the management has consistently executed 2-3 transactions every year to grow the REIT and also like the stability of the overseas logistics/industrial assets with their long leases and annual step-ups. However, one thing to note is that FLT previously experienced share price underperformance in 2018/2019 due to its FX exposure since all its assets were non-Singapore before the merger. Therefore, investors should be comfortable with the FX risk on the AUD, EUR and to some extent, the GBP.