Frasers Logistics & Commercial Trust (FLT SP): Buy Rating & FY25 DPU Forecast – UOB Kay Hian Analysis

UOB Kay Hian Private Limited

Friday, 16 May 2025

Frasers Logistics & Commercial Trust (FLT SP): Buy Maintained – Decent Yield Even After Stripping Out Capital Distribution

Frasers Logistics & Commercial Trust (FLT) invests in income-producing properties used predominantly for logistics, commercial (CBD office space) or business park (non-CBD office and R&D space) purposes in the Asia Pacific region and Europe [[1]].

Company Overview

• GICS sector: Real Estate [[1]]
• Bloomberg ticker: FLT SP [[1]]
• Shares issued (m): 3,762.2 [[1]]
• Market cap (S\$m): 3,103.8 [[1]]
• Market cap (US\$m): 2,392.2 [[1]]
• 3-mth avg daily t’over (US\$m): 12.0 [[1]]
• 52-week high/low: S\$1.19/S\$0.755 [[1]]

Price Performance (%)

• 1mth: 0.6 [[1]]
• 3mth: (5.2) [[1]]
• 6mth: (17.5) [[1]]
• 1yr: (16.7) [[1]]
• YTD: (6.3) [[1]]

Major Shareholders

• Frasers Property Ltd: 23.0% [[1]]

• FY25 NAV/Share (S\$): 1.11 [[1]]
• FY26 Net Debt/Share (S\$): 0.66 [[1]]

Recommendation

Maintain BUY with a target price of S\$1.10 [[1]]. The target price suggests an upside of 33.3% [[1]]. (Previous TP S\$1.26) [[1]].

1HFY25 Results

FLT’s 1HFY25 results demonstrated continued strong positive rental reversion of 33% for its logistics properties in Australia. It maintained full occupancy for its logistics properties in Australia, Europe and the UK [[1]]. FLT’s ability to acquire is supported by a low aggregate leverage of 36.1% and large debt headroom of S\$447m [[1]]. FLT provides FY25 yield of 7.4% (MLT: 7.2%) [[1]]. After stripping out capital distribution, FLT still provides a decent FY27 yield of 6.6% [[1]].

Key Financial Results: [[2]]

• Revenue: S\$232.3m (+7.5% yoy) [[2]] – Supported by positive rent reversions, rental escalations, completion of development projects and acquisitions [[2]].
• Net Property Income (NPI): S\$161.3m (+1.6% yoy) [[2]]
• Distributable Income: S\$113.0m (-13.5% yoy) [[2]] – Finance costs increased 35% yoy [[2]].
• DPU (cent): 3.00 (-13.8% yoy) [[2]] – Included capital distribution from divestment gains of S\$18.0m (S\$29.6m) [[2]].

*Excluding straight lining adjustments and adding lease payments for land use rights [[2]].

Key Observations

• Frasers Logistics & Commercial Trust (FLT) reported 1HFY25 DPU of 3.00 S cents (-13.8% yoy), which is below expectation [[2]].
• Absentee owner surcharge (AOS) in Victoria and Queensland affected NPI margin [[3]].
• Revenue and adjusted NPI increased 7.5% and 1.6% yoy respectively due to practical completion of Ellesmere Port in the UK (Dec 23) and Maastricht Property in the Netherlands (Oct 24) and the acquisition of four German logistics properties (Mar 24) and 2 Tuas South Link 1 in Singapore (Nov 24) [[3]].
• NPI margin narrowed by 4.1ppt yoy to 69.4% for 1HFY25 due to higher non-recoverable land taxes in Australia [[3]].
• FLT achieved positive rental reversion of +19.2% for new/renewal leases based on average rent vs average rent basis in 2QFY25 [[3]]. Seven logistics leases were renewed at positive rental reversion of +33.0% [[3]]. Rental reversion for commercial properties was mostly flattish [[3]].
• Portfolio occupancy eased 0.4ppt qoq to 93.9% as of Mar 25 [[3]]. Its logistics properties in Australia, UK and Europe were fully occupied [[3]].
• Occupancy for Alexandra Technopark slipped 7ppt qoq to 77.1% in 3QFY25 due to the lease expiry for Google’s tranche two space [[4]]. FLT has successfully secured replacement tenants for 54% of all the space vacated by Google (previous: 27%) [[4]]. FLT is working on backfilling the remaining vacant space but competition from other business parks remains tough [[4]].

Key Financials

Source: Frasers Logistics & Commercial Trust, Bloomberg, UOB Kay Hian [[5]]

Headwinds and Resiliency

• Finance costs increased 37% yoy in 1HFY25 due to higher interest rates and additional borrowings to fund development projects and acquisitions [[6]]. Cost of borrowings increased 0.4ppt yoy to 3.0% [[6]].
• Aggregate leverage remained low at 36.1% as of Mar 25 [[6]]. FLT has a debt headroom of S\$447m before reaching an aggregate leverage of 40% [[6]]. Interest coverage ratio is healthy at 4.5x [[6]].

Stock Impact

• FLT intends to pursue strategic growth opportunities in the resilient logistics segment, while evaluating the potential divestment of non-core office assets [[6]]. Management intends to increase the allocation for logistics properties to 70-85% (Dec 24: 72.4%) [[6]].
• It has a significant debt headroom of S\$447m for acquisitions before reaching an aggregate leverage of 40% [[6]]. FLT will focus on its five core developed markets of Singapore, Australia, Germany, Netherlands and the UK [[6]]. It will also explore expansion into Japan [[6]].
• FLT may divest some of its commercial properties in Australia (non-core office properties) and the UK (business parks) and recycle the capital freed up for reinvestment in logistics properties [[6]].
• Billionaire Harry Stamoulis is conducting due diligence on 25-storey 357 Collins Street in Melbourne, Australia. The deal was said to be struck at book value of A\$191m (S\$170m) [[7]]. The potential divestment, if successfully concluded, would help FLT rebalance towards logistics properties [[7]].

Earnings Revision/Risk

• DPU forecast cut by 5% for FY25, 9% for FY26 and 13% for FY27 [[7]]:
  • NPI margin has stabilised. An NPI margin of 72% has been factored in, slightly lower than previous 73%, as the negative impact from higher non-recoverable land taxes in Australia was heavier than expected [[7]].
  • Capital distribution was smaller at S\$18m in 1HFY25, compared with S\$30m for 2HFY24 [[7]]. Management would be adopting a conservative approach to cap capital distribution at S\$18m [[7]]. A capital distribution of S\$33m in FY25 (1HFY25: S\$18m, 2HFY25: S\$15m) and S\$10m in FY26 has been factored in [[7]]. It is assumed that capital distribution is removed starting FY27 [[8]].
  • 43% of 1HFY25 management fees were paid through the issuance of new units. Management maintained guidance that FLT would be paying 50-75% of management fees in units on a full-year basis for FY25 [[8]]. It is assumed that FLT pays 50% of management fees in new units in FY25 (1HFY25: 43%, 2HFY25: 57%), FY26 and FY27 [[8]].

Valuation/Recommendation

• Maintain BUY. Target price of S\$1.10 is based on DDM (cost of equity: 7.25%, terminal growth: 2.5%) [[8]].

Share Price Catalyst

• Acquisitions in Australia and Europe tapping on sponsor pipeline, and backfilling of vacant space at ATP in Singapore and business parks in the UK [[8]].

Key Operating Metrics

Source: FLT, UOB Kay Hian * hoh % chg for DPU [[8]]

Portfolio Valuation By Country

• Singapore: 12.5% [[9]]
• Australia: 46.2% [[9]]
• UK: 10.7% [[9]]
• Germany: 25.4% [[9]]
• The Netherlands: 5.2% [[9]]

Source: FLT [[9]]

Portfolio Valuation By Asset Type

• Logistics (Australia, Germany, Netherlands and the UK): 72.4% [[9]]
• CBD Commercial (Australia): 6.9% [[9]]
• Suburban Office & Business Parks (Australia, Singapore and the UK): 20.7% [[9]]

Source: FLT [[9]]

Top 10 Logistics Tenants (% of Gross Rental Income)

• Hermes (Germany): 3.9 [[9]]
• Ceva Logistics (Australia + Singapore): 3.1 [[9]]
• BMW (Germany): 2.2 [[9]]
• FDM Warehousing (Australia): 1.9 [[9]]
• DSV (Netherlands + Germany + Singapore): 1.7 [[9]]
• Mainfreight (Netherlands): 1.6 [[9]]
• Techtronic Industries (Australia): 1.5 [[9]]
• Peugeot (United Kingdom): 1.4 [[9]]
• Schenker (Australia + Germany): 1.4 [[9]]
• Bosch (Germany): 1.3 [[9]]

Source: FLT [[10]]

Debt Maturity Profile (S\$m)

• FY25: 160 [[10]]
• FY26: 138 [[10]]
• FY27: 251 [[10]]
• FY28: 217 [[10]]
• FY29: 12, 78, 113, 26, 279 [[10]]
• FY30 & Beyond: 187, 269, 443, 6, 209, 90 [[10]]

Source: FLT [[10]]

Profit & Loss

Balance Sheet

Cash Flow Key Metrics

Key Metrics