OCBC Investment Research Private Limited 7 May 2025
Frasers Logistics & Commercial Trust: DPU Dip Amidst Strong Rental Reversions and Portfolio Shifts
Introduction
Frasers Logistics & Commercial Trust (FLCT), a Singapore-listed real estate investment trust, recently provided an update on its performance for the first half of the financial year ending September 2025 (1HFY25). The report highlights a dip in distribution per unit (DPU) despite solid rental reversions and a healthy balance sheet, prompting analysts to revise forecasts and fair value estimates.
1HFY25 Financial Performance Analysis
FLCT reported a 1HFY25 distribution per unit (DPU) of 3.00 Singapore cents, marking a 13.8% year-on-year (YoY) decrease. This result fell below both the analyst’s and the street’s expectations, accounting for only 46.4% and 47.3% of their initial full-year FY25 DPU forecasts, respectively.
Financially, 1HFY25 saw revenue increase by 7.5% YoY to SGD232.3 million, while net property income (NPI) rose by 5.4% YoY to SGD167.4 million. However, net finance costs surged significantly by 37.5% YoY to SGD39.0 million. Contributing to the DPU decline was a smaller proportion of management fees taken in units (43.1%) compared to 100% in 1HFY24. Despite an increase in capital distribution from divestment gains, which rose from SGD13.5 million in 1HFY24 to SGD18.0 million in 1HFY25, the overall DPU was lower. Analysts expect capital distribution from divestment gains to ease sequentially in 2HFY25.
Portfolio Operational Performance
FLCT demonstrated robust portfolio rental reversions of 19.2% in 2QFY25. This strength was primarily driven by the Logistics & Industrial (L&I) portfolio, which achieved rental reversions of 33.0%. In contrast, the commercial portfolio saw slightly negative rental reversions of -0.3% in the same quarter.
The negative commercial rental reversions were mainly attributed to Singapore (-8.1%), specifically due to the backfilling of space vacated by Google at Alexandra Technopark (ATP). Approximately 54% of the vacated space at ATP has been backfilled with new tenants from sectors including engineering, third-party logistics (3PLs), and transport and freight. Committed occupancy at ATP stood at 77.1%, though physical occupancy was lower at 66.4% as signed leases are yet to commence. Positive rental uplifts were recorded in other commercial markets, including the UK (+18.5%), Victoria (+10.0%), and Western Australia (+23.1%), which helped mitigate the decline in Singapore.
Overall portfolio occupancy rate edged down marginally by 0.4 percentage points quarter-on-quarter (QoQ) to 93.9%. This decline was largely due to the commercial portfolio occupancy falling by 1.4 percentage points QoQ to 84.1%, primarily impacted by higher vacancies at ATP. The L&I portfolio maintained a significantly higher occupancy rate of 99.6%, supporting the overall portfolio figure.
Balance Sheet and Financial Health
FLCT’s aggregate leverage ratio remained stable, decreasing marginally from 36.2% as at 31 December 2024 to 36.1%. A significant portion of borrowings, 69.7%, is fixed, providing a degree of stability against interest rate fluctuations. The interest coverage ratio remains healthy at 4.5x. The cost of debt saw a slight decrease of 0.1 percentage points QoQ to 3.0% on a trailing 3-months basis, although it is still expected to increase to the mid-3% range for FY25 due to the refinancing of older, low-cost debt.
Given the softer-than-expected 1HFY25 results, analysts have revised their FY25 and FY26 DPU forecasts downwards by 8.3% and 6.3% respectively. The cost of equity assumption has also been raised from 6.8% to 7.1%, aligning with the approach for other industrial S-REITs under coverage. Consequently, the fair value estimate has been lowered from SGD1.14 to SGD1.07.
Investment Thesis and Strategy
FLCT’s investment merits include its resilient L&I portfolio, healthy balance sheet, and long weighted average lease to expiry with manageable lease expiries in FY25. The portfolio comprises prime logistics and industrial assets in Australia, Germany, and the Netherlands, alongside commercial and business park assets in Singapore, Australia, and the UK. Management is strategically aiming to increase the L&I asset under management (AUM) exposure from the current 70% to 85% in the long term, reflecting a focus on the stronger-performing segment.
ESG Profile
FLCT places a strong focus on ESG aspects. While the trust’s ESG rating was downgraded in June 2023, primarily due to staff management practices lagging peers and a lack of periodic ethics audits despite strong business ethics practices, it leads global peers in corporate governance, particularly board and ownership structures. On the environmental front, FLCT continues to excel, retaining the highest 5 Star rating for the eighth consecutive year under the Global Real Estate Sustainability Benchmark (GRESB) 2024 assessment. Its Australian industrial portfolio has also obtained the highest Green Star performance rating.
Potential Catalysts and Investment Risks
Potential catalysts for FLCT’s performance include stronger-than-expected growth in industrial rents in Australia and Europe, DPU-accretive acquisitions, and better-than-expected hedge rates for the AUD, GBP, and EUR currencies.
Conversely, investment risks include a slowdown in macroeconomic conditions impacting business sentiment, any significant spike in interest rates increasing borrowing costs, and depreciation in the AUD, GBP, and EUR against the SGD potentially impacting distributions to unitholders.
Company Overview and Financial Snapshot
As of 30 September 2024, FLCT’s portfolio consisted of 112 industrial and commercial properties valued at approximately SGD6.8 billion, diversified across Australia, Germany, Singapore, the UK, and the Netherlands. The trust was listed on the SGX-ST Mainboard on 20 June 2016 and was renamed following a merger in April 2020. Its investment strategy focuses on income-producing logistics, industrial, and specific commercial properties globally. FLCT is a constituent of key indices including the FTSE EPRA Nareit Global Real Estate Index Series (Global Developed Index), Straits Times Index, and Global Property Research (GPR) 250.
The FY24 net property income breakdown by segment shows Logistics & Industrial assets contributing the largest share: Australia (34.4%), Europe (29.6%), and UK (3.6%). Commercial assets contribute: Australia (13.3%), Singapore (10.7%), and United Kingdom (8.4%).
Historical trends show the aggregate leverage ratio fluctuating between 27.4% (FY22) and 37.4% (FY20), standing at 33.0% in FY24. Portfolio occupancy trended downwards from 99.6% in FY18/FY19 to 94.5% in FY24. Distribution per unit saw fluctuations, peaking at 7.68 S cents in FY21 and standing at 6.80 S cents in FY24.
Detailed Financials
The following tables provide a detailed look at FLCT’s financials based on the report data.
| Income Statement |
FY2020 |
FY2021 |
FY2022 |
FY2023 |
FY2024 |
| In Millions of SGD except Per Share |
12 Months Ending 30/09 |
12 Months Ending 30/09 |
12 Months Ending 30/09 |
12 Months Ending 30/09 |
12 Months Ending 30/09 |
| Revenue |
332.0 |
469.3 |
450.2 |
420.8 |
446.7 |
| – Cost of Revenue |
91.4 |
143.1 |
144.3 |
145.2 |
163.1 |
| Gross Profit |
240.6 |
326.2 |
305.9 |
275.6 |
283.5 |
| + Other Operating Income |
— |
— |
— |
— |
— |
| – Operating Expenses |
-327.1 |
-598.0 |
-600.0 |
298.7 |
-0.4 |
| Operating Income or Losses |
567.8 |
924.2 |
905.9 |
-23.1 |
284.0 |
| – Interest Expense |
37.3 |
43.5 |
47.9 |
88.8 |
109.6 |
| – Foreign Exchange Losses (Gains) |
— |
— |
— |
— |
— |
| – Net Non-Operating Losses (Gains) |
— |
— |
— |
— |
— |
| Pretax Income |
530.5 |
880.7 |
858.0 |
-111.9 |
174.4 |
| – Income Tax Expense (Benefit) |
71.7 |
140.9 |
119.3 |
-6.6 |
23.7 |
| Income Before XO Items |
458.8 |
739.8 |
738.7 |
-105.3 |
150.7 |
| – Extraordinary Loss Net of Tax |
— |
— |
— |
— |
— |
| – Minority/Non Controlling Interests (Credits) |
4.0 |
8.7 |
10.1 |
-2.3 |
3.2 |
| Net Income/Net Profit (Losses) |
454.7 |
731.1 |
728.6 |
-103.0 |
147.5 |
| Net Inc Avail to Common Shareholders |
454.7 |
731.1 |
728.6 |
-103.0 |
147.5 |
| Abnormal Losses (Gains) |
— |
— |
— |
— |
— |
| Tax Effect on Abnormal Items |
— |
— |
— |
— |
— |
| Normalized Income |
458.8 |
739.8 |
738.7 |
-105.3 |
150.7 |
| Basic Earnings per Share |
0.2 |
0.2 |
0.2 |
0.0 |
0.0 |
| Basic Weighted Avg Shares |
2,763.4 |
3,508.4 |
3,691.2 |
3,720.5 |
3,752.7 |
| Diluted EPS Before Abnormal Items |
0.2 |
0.2 |
0.2 |
0.0 |
0.0 |
| Diluted EPS Before XO Items |
0.2 |
0.2 |
0.2 |
0.0 |
0.0 |
| Diluted EPS |
0.2 |
0.2 |
0.2 |
0.0 |
0.0 |
| Diluted Weighted Avg Shares |
2,788.0 |
3,525.0 |
3,711.6 |
3,720.5 |
3,752.7 |
| Profitability Ratios |
FY2020 |
FY2021 |
FY2022 |
FY2023 |
FY2024 |
| 12 Months Ending 30/09 |
|
|
|
|
|
| Returns |
|
|
|
|
|
| Return on Common Equity |
15.53 |
17.52 |
15.48 |
-2.24 |
3.41 |
| Return on Assets |
9.10 |
10.26 |
9.79 |
-1.47 |
2.14 |
| Return on Capital |
3.12 |
2.20 |
2.11 |
2.22 |
2.26 |
| Return on Invested Capital |
5.48 |
3.61 |
3.40 |
– |
3.84 |
| Margins |
|
|
|
|
|
| Operating Margin |
159.77 |
187.64 |
190.59 |
-26.60 |
39.04 |
| Incremental Operating Margin |
1.41 |
1.17 |
1.02 |
-0.14 |
-1.47 |
| Pretax Margin |
159.77 |
187.64 |
190.59 |
-26.60 |
39.04 |
| Income before XO Margin |
136.95 |
155.78 |
161.85 |
-24.49 |
33.03 |
| Net Income Margin |
136.95 |
155.78 |
161.85 |
-24.49 |
33.03 |
| Net Income to Common Margin |
136.95 |
155.78 |
161.85 |
-24.49 |
33.03 |
| Additional |
|
|
|
|
|
| Effective Tax Rate |
13.52 |
16.00 |
13.90 |
– |
13.59 |
| Dvd Payout Ratio |
32.25 |
35.61 |
37.91 |
-249.48 |
170.26 |
| Sustainable Growth Rate |
15.48 |
17.46 |
15.42 |
-2.29 |
3.35 |
| Credit Ratios |
FY2020 |
FY2021 |
FY2022 |
FY2023 |
FY2024 |
| 12 Months Ending 30/09 |
|
|
|
|
|
| Total Debt/EBIT |
11.12 |
8.43 |
6.99 |
8.00 |
8.67 |
| Net Debt/EBIT |
10.41 |
7.99 |
6.25 |
7.44 |
8.19 |
| EBIT to Interest Expense |
6.32 |
7.31 |
6.27 |
3.03 |
2.54 |
| Long-Term Debt/Total Assets |
28.86 |
31.86 |
26.18 |
23.54 |
26.00 |
| Net Debt/Equity |
0.66 |
0.57 |
0.40 |
0.47 |
0.55 |
Valuation Analysis and Peer Comparison
The report includes a comparison of key valuation metrics for FLCT against several other Singapore-listed REITs as of 7 May 2025.
|
|
Price/Earnings |
Price/Book |
EV/EBITDA |
Dividend Yield (%) |
ROE (%) |
|
|
FY25E |
FY26E |
FY25E |
FY26E |
FY25E |
FY26E |
FY25E |
FY26E |
FY25E |
FY26E |
| FRASERS LOGISTICS & COMMERCIAL TRUST (FRAE.SI) |
|
19.0 |
16.6 |
0.8 |
0.8 |
18.8 |
18.1 |
6.6 |
6.6 |
4.2 |
4.4 |
| CAPITALAND ASCENDAS REIT (CAPD.SI) |
|
17.3 |
16.9 |
1.2 |
1.1 |
19.3 |
18.6 |
5.7 |
5.9 |
6.6 |
6.8 |
| ESR-REIT (ESRO.SI) |
|
11.8 |
10.1 |
0.8 |
0.8 |
15.7 |
15.4 |
9.5 |
9.6 |
6.5 |
7.4 |
| KEPPEL DC REIT (KEPE.SI) |
|
21.0 |
19.7 |
1.4 |
1.4 |
21.0 |
19.8 |
4.6 |
4.9 |
6.7 |
7.0 |
| MAPLETREE INDUSTRIAL TRUST (MAPI.SI) |
|
15.3 |
15.0 |
1.1 |
1.1 |
18.5 |
18.4 |
6.6 |
6.7 |
7.4 |
7.4 |
The report also includes charts illustrating the historical Price/Book and Dividend Yield trends for FLCT relative to their averages and standard deviations, providing visual context for its current valuation multiples.
