OCBC Investment Research
1 August 2025

Frasers Logistics & Commercial Trust: Strong Rental Reversions, Strategic Divestments, and ESG Leadership Set the Stage for Growth

Overview: A Resilient REIT Poised for Further Upside

Frasers Logistics & Commercial Trust (FLCT) stands out in the Singapore real estate sector with its robust portfolio of prime logistics and industrial (L&I) assets across Australia, Germany, and the Netherlands, complemented by commercial and business park properties in Singapore, Australia, and the UK. With a strategic focus on increasing its L&I asset exposure and a forward-looking ESG agenda, FLCT offers investors a balance of resilience, growth, and sustainability.

Key Investment Highlights

• Strong rental reversions: FLCT achieved impressive portfolio rental reversions of 43.3% in 3QFY25 and 30.7% for 9MFY25, driven mainly by its L&I assets.
• Portfolio occupancy: Despite stellar rental performance, overall occupancy dropped 1.4 percentage points quarter-on-quarter (QoQ) to 92.5%.
• Aggregate leverage: Leverage increased 0.7 ppt QoQ to 36.8%. Gearing is poised to fall to ~35.4% post-divestment of 357 Collins Street, if sale proceeds are used for loan repayment.
• ESG leadership: FLCT continues to excel in sustainability, targeting net zero carbon by 2050 and ranking among the best in the Global Real Estate Sustainability Benchmark (GRESB).

Business Performance: Rental Reversions and Occupancy Trends

• Logistics & Industrial Portfolio: Rental reversions soared to 55.8%, highlighted by a landmark 10-year lease in Victoria, Australia, for 802,406 square feet at a 72.2% rental uplift and a 3% annual increment.
• Commercial Portfolio: Achieved 17.7% rental reversions, fueled by new leases in Singapore, the UK, and Australia.
• Occupancy: Overall portfolio occupancy declined to 92.5%. L&I portfolio occupancy slipped 2.9 ppt QoQ to 95.7% due to softness in Australia and Singapore, while commercial occupancy rose 1.0 ppt QoQ to 85.1%, particularly in the UK.
• Leasing Activity: No new leases were secured for Alexandra Technopark (Singapore), though negotiations are ongoing.

Financial Summary: Revenue, Income, and Distribution Performance

• DPU Yield: 7.5% (FY24), 6.6% (FY25E), 6.6% (FY26E)
• Price/Book: 0.8x consistently across forecast years
• ROE: Strengthening from 3.5% (FY24) to 4.4% (FY26E)
• Gearing: Projected to rise to 35.5% by FY26E

Strategic Moves: Divestment and Capital Recycling

• Aggregate leverage increased to 36.8% with 67.3% of debt fixed.
• Divestment of 357 Collins Street, Melbourne (AUD192.1m/SGD161.4m) expected to complete by 30 Sep 2025.
• Assuming full loan repayment from proceeds, leverage drops to ~35.4%.
• Sale deemed astute given headwinds in the Melbourne office market; capital likely to be redeployed into accretive acquisitions.
• Cost of debt rose to 3.2%, with expectations of reaching the mid-3% range by end-FY25.
• FY25 DPU forecast maintained, FY26 trimmed by 2.3% due to divestment and higher debt costs, offset by favorable EUR/GBP assumptions.

ESG Excellence: Setting the Benchmark in Real Estate

• Upgraded ESG rating as of June 2025, recognizing FLCT’s industry-leading business ethics and anti-corruption framework with board-level oversight.
• Corporate governance recognized as best-in-class globally, supported by a fully independent audit committee.
• Environmental leadership with the highest 5-Star rating in GRESB for the eighth consecutive year and top Green Star performance-rated industrial portfolio in Australia.

Potential Catalysts and Risks

Catalysts:

• Stronger-than-expected growth in industrial rents in Australia and Europe
• DPU-accretive acquisitions
• Favorable hedge rates for AUD, GBP, and EUR

Risks:

• Macroeconomic slowdown dampening business sentiment
• Interest rate spikes raising borrowing costs
• Depreciation in AUD, GBP, and EUR impacting SGD distributions

Peer Comparison: How FLCT Stacks Up

Company Overview: Portfolio, Strategy, and Market Presence

FLCT is a leading Singapore-listed REIT with 112 industrial and commercial properties valued at approximately SGD6.8 billion, spanning Australia, Germany, Singapore, the UK, and the Netherlands. Originally listed as Frasers Logistics & Industrial Trust in 2016, the trust rebranded in 2020 after merging with Frasers Commercial Trust. FLCT’s strategy focuses on acquiring income-producing logistics, industrial, and commercial properties in developed markets, with a mandate covering global logistics/industrial assets and Asia-Pacific or European commercial assets.
FLCT is included in major indices such as the FTSE EPRA Nareit Global Real Estate Index, Straits Times Index, and GPR 250.

Financial and Operational Metrics: Trends and Performance

• FY24 Net Property Income Breakdown:
  • Logistics & Industrial (Australia): 34.4%
  • Logistics & Industrial (Europe): 29.6%
  • Logistics & Industrial (UK): 3.6%
  • Commercial (Australia): 13.3%
  • Commercial (Singapore): 10.7%
  • Commercial (UK): 8.4%
• Aggregate Leverage Ratio Trend: Peaked at 37.4% in FY20, stabilized at 33.0% in FY23, and rising to 36.8% in FY24.
• Occupancy Rate Trend: From 99.6% in FY18-19, trending lower to 94.5% in FY24.
• DPU Trend (S cents): Peaked at 7.68 (FY21), declining to 6.80 (FY24).

Detailed Financials: Income, Profitability, and Credit Ratios

• Profitability Ratios (FY24):
  • Return on Common Equity: 3.41%
  • Return on Assets: 2.14%
  • Operating Margin: 39.04%
  • Net Income Margin: 33.03%
  • Dividend Payout Ratio: 170.26%
  • Sustainable Growth Rate: 3.35%
• Credit Ratios (FY24):
  • Total Debt/EBIT: 8.67
  • Net Debt/EBIT: 8.19
  • EBIT to Interest Expense: 2.54
  • Long-Term Debt/Total Assets: 26.00%
  • Net Debt/Equity: 0.55

Conclusion: FLCT—A Compelling Choice for Income and Growth Investors

Frasers Logistics & Commercial Trust offers a compelling mix of resilient logistics/industrial exposure, strategic capital management, and unmatched ESG credentials. Despite some pressures on occupancy and rising debt costs, the trust’s ability to deliver strong rental reversions, prudent divestments, and consistent financial performance positions it as a leader in its sector. The ongoing commitment to sustainability and best-in-class governance further supports its attractiveness to long-term investors seeking both yield and growth potential.