UOB Kay Hian
Date of Report: 5 August 2025

Frasers Logistics & Commercial Trust: Robust Rental Growth and Strategic Refocus Power Upside Potential

Introduction: Strong Momentum in Logistics and Commercial Property

Frasers Logistics & Commercial Trust (FLT), a leading Singapore-listed REIT, invests in income-producing logistics, commercial (CBD office), and business park properties across the Asia Pacific and Europe. The trust continues to demonstrate resilience and growth, driven by positive rental reversions, strategic asset recycling, and disciplined capital management.

Investment Highlights at a Glance

• Current Price: S\$0.87
• Target Price: S\$1.15 (Upside: 32.2%)
• Market Cap: S\$3,279.9 million
• FY25E Yield: 6.8% | FY27E Yield (ex-capital distribution): 5.8%
• Aggregate Leverage: 36.8% (low, with significant debt headroom)
• Major Shareholder: Frasers Property Ltd (23%)

Double-Digit Rental Reversions Fuel Earnings Growth

FLT sustained a stellar average rental reversion of +43.3% for new and renewal leases in 3QFY25, with logistics properties in Australia leading the charge at an eye-popping +55.8%. This strong momentum underscores the robust demand for quality logistics assets in core markets.

• Australian Logistics: A major 802,400 sf, 10-year lease renewal in Melbourne delivered a remarkable 72% rental reversion. Despite a 4.3 percentage point dip in occupancy to 95.7% (due to non-renewal by Techtronic), management is confident of rapid backfilling given the asset’s prime Sydney location and an estimated 15–20% under-renting across the logistics portfolio.
• Singapore: The sole logistics asset at 2 Tuas South Link 1 saw occupancy temporarily fall to 73.5% after a tenant break, but one-third of the space was immediately backfilled with zero downtime, and the remainder was filled in July, restoring occupancy to about 90%. The backfilled spaces achieved an 8% rental reversion.
• UK & Europe: Logistics properties are fully occupied, highlighting the strength of FLT’s core European platform.

Commercial and Business Parks: Navigating Market Challenges

• Alexandra Technopark (ATP), Singapore: Occupancy eased 2.8 percentage points to 74.3% due to one tenant’s downsizing. However, FLT has already secured leases for 54% of the space vacated by Google, with leases totaling 8% of ATP’s net lettable area set to commence by 1QFY26, providing a near-term cash flow uplift.
• 357 Collins Street, Melbourne: This 25-storey Grade A office tower saw occupancy improve from 63.9% to 76.4% in 3QFY25, with new tenants delivering a 21.8% rental reversion. Despite these gains, persistent high vacancy rates (Melbourne CBD office vacancy at 18%) prompted FLT to enter into an agreement to divest the asset for A\$195.3 million, enhancing portfolio resilience and freeing up capital for logistics investments.

Strategic Portfolio Rebalancing and Growth Initiatives

FLT is pivoting decisively toward logistics, aiming for a 70–85% allocation (currently 72.6%). The trust is evaluating logistics acquisitions in Singapore and Europe, particularly in Germany and the Netherlands. Non-core office assets in Australia and business parks in the UK are candidates for divestment, with proceeds earmarked for higher-yielding logistics opportunities.

• Portfolio Mix (by Value):
  • Australia: 45.6%
  • Germany: 26.0%
  • Singapore: 12.4%
  • UK: 10.7%
  • Netherlands: 5.3%
• Asset Type Breakdown:
  • Logistics (Australia, Germany, Netherlands, UK): 72.6%
  • CBD Commercial (Australia): 6.8%
  • Suburban Office & Business Parks (Australia, Singapore, UK): 20.6%

Financial Performance and Key Metrics

Resilient Capital Structure and Prudent Capital Management

• Aggregate leverage remains low at 36.8% (as of June 2025), providing S\$362 million of debt headroom before reaching 40%. Post-divestment of 357 Collins Street, headroom rises to S\$521 million.
• Interest coverage is robust at 4.1x, although the cost of borrowings increased slightly by 0.2 percentage points to 3.2% in 3QFY25 due to EUR debt refinancing. Management projects a further 10–20bp uptick in borrowing costs in 4QFY25.
• All-in financing cost: 3.2% | % of Borrowing in Fixed Rates: 67.3%.

Distribution and Capital Management Updates

• Distribution Per Unit (DPU) Outlook: Forecasts have been trimmed by 4% (FY26) and 5% (FY27), reflecting the Collins Street divestment, moderated Singapore logistics occupancy, and a higher tax rate.
• Capital Distribution Policy: The trust is gradually weaning off capital distributions, capping at S\$18 million per half-year. Projections assume S\$33 million capital distribution in FY25 (S\$18m 1HFY25, S\$15m 2HFY25) and S\$15 million in FY26, with none from FY27 onward.
• Management Fees: At least 50% of management fees to be paid in units (43% for 1HFY25; expected 57% for 2HFY25), reducing cash outflow and aligning management with unitholders.

Top Tenants and Portfolio Diversification

FLT’s portfolio is supported by a roster of blue-chip logistics tenants:

• Hermes (Germany)
• Ceva Logistics (Australia & Singapore)
• DSV (Netherlands, Germany, Singapore)
• BMW (Germany)
• FDM Warehousing (Australia)
• Mainfreight (Netherlands)
• Peugeot Motor (UK)
• Bosch (Germany)
• Constellium (Germany)
• STEF Logistics (Netherlands)

Debt Maturity Profile

FLT maintains a well-laddered debt maturity schedule, minimizing refinancing risk and supporting funding flexibility for growth and acquisitions.

Valuation and Recommendations

The trust is rated BUY, with a DDM-derived target price of S\$1.15 (cost of equity: 6.75%, terminal growth: 2.5%).

Key Catalysts for Upside

• Further logistics acquisitions in Singapore and Europe leveraging the sponsor pipeline
• Swift backfilling of vacancies at Alexandra Technopark (Singapore) and UK business parks
• Successful recycling of capital from non-core asset divestments into higher-yielding logistics assets

Conclusion: Well-Positioned for Growth Amid Sector Tailwinds

Frasers Logistics & Commercial Trust stands out as a prime play in the logistics and commercial REIT space, underpinned by strong rental reversions, prudent capital management, and a clear focus on high-growth logistics assets. With ample balance sheet flexibility and a robust acquisition pipeline, FLT is poised to capitalize on sustained demand for logistics and business park assets across its core markets.

Disclaimer

This report is for informational purposes only and does not constitute investment advice. Investors should seek professional guidance before making investment decisions.