Frasers Logistics & Commercial Trust (FLT): Resiliency and Growth Through Logistics Properties

Broker: UOB Kay Hian

Date: February 10, 2025

Overview of Frasers Logistics & Commercial Trust (FLT)

Frasers Logistics & Commercial Trust (FLT) is a real estate investment trust (REIT) focused on acquiring and managing income-generating properties used for logistics, commercial, and business park purposes across the Asia Pacific region and Europe. The REIT is listed under the GICS Real Estate sector and trades under the Bloomberg ticker FLT SP.

Stock Recommendation and Target Price

The report by UOB Kay Hian maintains a BUY recommendation for FLT, with a target price of S\$1.26, reflecting an upside potential of 42.4% from its current share price of S\$0.885. While the target price has been revised downward from the previous S\$1.33, the outlook remains robust due to the company’s strong fundamentals.

Key Highlights from the 1QFY25 Business Update

• Strong Rental Reversions: FLT achieved a positive rental reversion of 41.8% on an average vs. average basis during 1QFY25. This was primarily driven by its logistics properties in Australia, with rental growth rates as high as 69.4% in Victoria and 47.3% in Queensland. Germany also showed a positive rental reversion of 7.9%.
• High Occupancy Rates: FLT maintained full occupancy for its logistics properties in Australia, Europe, and the UK. However, occupancy in Singapore for the newly acquired 2 Tuas South Link 1 stood at 89.3%.
• Lease Renewals: Services Australia renewed its lease for the Caroline Chisholm Centre in Canberra for 12 years starting July 2025. This demonstrates the REIT’s ability to secure long-term tenants.
• Financial Flexibility: With an aggregate leverage of 36.2% and debt headroom of S\$433 million, FLT retains significant financial flexibility for future acquisitions.
• Yield Advantage: FLT offers an attractive FY25 yield of 7.3%, which is higher than its peer Mapletree Logistics Trust (MLT) at 6.7%.

Portfolio and Performance Insights

Australia: The Growth Engine

FLT’s logistics properties in Australia are under-rented by 30%, ensuring continued rental reversions. According to CBRE, while rental growth in Sydney, Melbourne, and Brisbane slowed in 4Q24, the transport, postal, and warehousing sectors remain strong drivers of leasing activities. The vacancy rate, although slightly higher than historical lows, stands at a globally competitive 2.5%. The 2025 pipeline includes 25.8 million square feet of new supply, 40% of which is pre-committed. Supply is expected to ease in 2026.

Singapore: Challenges in Backfilling Space

Occupancy at Alexandra Technopark (ATP) in Singapore was stable at 84.1% in 1QFY25. FLT successfully secured replacement tenants for 25% of tranche one space vacated by Google Asia Pacific (expiry: February 2024) and 29% of tranche two space (expiry: December 2024). However, occupancy is expected to dip to 70% in 2QFY25 due to tough competition from other business parks.

Europe: Steady Growth

In Europe, FLT’s logistics properties in Germany achieved a positive rental reversion of 7.9%. The company’s focus on logistics properties in Germany and the Netherlands aligns with its strategy to pivot towards high-growth markets.

United Kingdom: Mixed Occupancy Trends

Occupancy at Maxis Business Park in the UK improved by 6.7 percentage points quarter-on-quarter to 87.1%. However, occupancy at 357 Collins Street in Melbourne dropped by 19.9 percentage points to 63% due to the non-renewal by Service Stream.

Financial Metrics and Projections

FLT’s financials for FY25 and beyond showcase a stable growth trajectory. Key metrics include:

• Net Turnover: Expected to grow from S\$467 million in FY25 to S\$493 million in FY27.
• EBITDA: Projected to increase from S\$296 million in FY25 to S\$314 million in FY27, with a consistent EBITDA margin of around 63%.
• Net Profit: Adjusted net profit for FY25 is estimated at S\$186 million, with a slight dip to S\$184 million in FY26 before recovering to S\$192 million in FY27.
• Distribution Per Unit (DPU): Expected to decline slightly from 6.4 cents in FY25 to 6.1 cents in FY26 due to higher interest costs but rebound to 6.2 cents in FY27.
• Cost of Debt: Stable at 3.1% in 1QFY25 but projected to rise to mid-3% by 4QFY25 as loans are refinanced at higher rates.

Strategic Focus and Future Outlook

FLT aims to increase its allocation to logistics properties to 70-85% of its portfolio, up from 72.4% as of December 2024. The company plans to divest non-core commercial properties in Australia and business parks in the UK to recycle capital into logistics properties. An expansion into Japan is also on the horizon.

Additionally, FLT is taking steps to comply with the Australian Taxation Administration Act by paying 50-75% of management fees through new unit issuances. The sponsor, Frasers Property Limited, will sell these units to ensure compliance with the “closely held test” for managed investment trusts in Australia.

Valuation and Recommendation

UOB Kay Hian values FLT using the Dividend Discount Model (DDM), with a cost of equity of 7.25% and a terminal growth rate of 2.5%. The target price of S\$1.26 reflects the REIT’s strong fundamentals, growth potential in logistics properties, and attractive yield proposition.

Key Catalysts for Share Price Growth

• Acquisitions in Australia and Europe leveraging the sponsor’s pipeline.
• Successful backfilling of vacant space at Alexandra Technopark in Singapore and business parks in the UK.
• Continued positive rental reversions in logistics properties globally.

Conclusion

Frasers Logistics & Commercial Trust remains a resilient investment option with a strong focus on the high-growth logistics sector. Despite challenges in certain markets like Singapore, the REIT’s strategic initiatives and robust financial position make it a compelling buy for investors seeking stable returns and growth potential.