Introduction to Frasers Logistics & Commercial Trust (FLT)

Frasers Logistics & Commercial Trust (FLT) focuses on investing in income-generating properties across the logistics, commercial, and business park segments in the Asia-Pacific region and Europe. With a resilient portfolio and strategic positioning, FLT remains a compelling investment opportunity amidst market controversies.

Key Stock Metrics

• Share Price: S\$0.88
• Target Price: S\$1.33 (previously S\$1.44)
• Upside Potential: +51.1%
• Market Cap: S\$3,310.7 million
• 52-Week High/Low: S\$1.19/S\$0.85
• FY25 NAV per Share: S\$1.11
• FY26 Net Debt per Share: S\$0.66
• Dividend Yield (FY25): 7.3%

Strength of Logistics Portfolio Remains Intact

Despite recent controversies, FLT’s logistics portfolio and balance sheet remain robust. A recent report sparked concerns within the financial community, particularly regarding new units issued in lieu of management fees. However, FLT’s management has ensured that these units can be comfortably absorbed, accounting for only 9% of daily turnover if disposed of over 10 days.

Additionally, the restructuring involving ThaiBev and TCC Assets has consolidated an 86.9% stake in Frasers Property Limited (FPL) under TCC Assets. This restructuring led to an effective stake in FLT by Charoen Sirivadhanabhakdi, which remains just below the 10% threshold required to maintain the Australian subsidiary’s Managed Investment Trust (MIT) status.

Impact of Land and Property Tax in Australia

FLT has already accounted for the negative impact of higher land and property taxes in Australia for FY24. The Absentee Owner Surcharge (AOS) in Victoria doubled from 2% to 4%, affecting logistics properties that contributed 16% of FLT’s FY24 gross revenue. This increased tax burden reduced the Net Property Income (NPI) margin by 2 percentage points. For FY25, FLT does not anticipate a significant rise in land and property taxes if the AOS remains at 4%.

Debt Management and Cost of Borrowing

FLT’s cost of debt rose by 30 basis points quarter-on-quarter to 3.1% in 4QFY24, with a forecasted increase to mid-3% by 4QFY25. Loans maturing in FY25, denominated in SGD and GBP, amount to S\$413 million. However, FLT’s aggregate leverage remains low at 33.0%, providing a buffer against rising borrowing costs.

Key Financial Highlights

Growth Strategy and Portfolio Adjustments

FLT aims to pivot further towards logistics, increasing the segment’s allocation to 70-85% from the current 72%. The trust has significant debt headroom of S\$801 million for acquisitions, focusing on core markets like Singapore, Australia, Germany, the Netherlands, and the UK. Expansion into Japan is also under consideration.

In Singapore, FLT recently acquired a prime logistics property at 2 Tuas South Link 1 for S\$140.3 million. This modern facility is located near Tuas Mega Port and is expected to contribute a 6.6% NPI yield, rising to 6.9% with occupancy guarantees. The acquisition will increase FLT’s Singapore exposure to 11.6% and is estimated to boost DPU by 1.7% on a pro forma basis for 1HFY24.

Challenges in Backfilling Vacancies

FLT faces challenges in backfilling vacancies at Alexandra Technopark (ATP) in Singapore. With Google Asia Pacific vacating significant space, occupancy is expected to dip to 74% in 1QFY25. FLT is actively working to fill the remaining vacant spaces, though competition from other business parks remains intense.

Valuation and Recommendation

The target price for FLT is set at S\$1.33, based on a Dividend Discount Model (DDM) with a cost of equity of 7.0% and a terminal growth rate of 2.5%. Despite certain headwinds, the trust’s strategic initiatives and stable logistics portfolio underpin its resilience. The recommendation for FLT is a firm BUY.