Frasers Logistics & Commercial Trust: Recalibrating for more sustainable earnings
- 1H25 DPU of 3.00Scts was lower h/h, mainly due to partial payment of management fees in cash and FX
- Committed occupancy at ATP currently above 77%, but slowdown in backfilling anticipated
- Strong double-digit positive rent reversions to partially offset increase in vacancies
- Maintain BUY with lower TP of SGD1.05 to account for weaker AUD
Related Stories
- Frasers Logistics & Commercial Trust: First Take: 1H25 Results - Some progress on the backfilling at ATP07 May 2025
- Frasers Logistics & Commercial Trust: ocused on core earnings06 Feb 2025
- Frasers Logistics & Commercial Trust: Results First Take: 1Q25 - 12-year lease renewal with largest tenant05 Feb 2025
Revenues and NPI higher y/y due mainly to acquisitions. Revenue during the period saw a full six months’ contribution from the Ellesmere Port property, which was completed in December 2023. Additionally, the acquisition of four German logistics properties, completed in March 2024, also contributed meaningfully to top-line growth. There was also a partial revenue contribution from the Maastricht property, which was completed in October 2024, as well as 2 Tuas South Link 1, acquired in November 2024. These additions further supported the portfolio’s income base.
However, the revenue uplift was partially offset by higher vacancy rates at Alexandra Technopark (ATP) and 357 Collins Street, which weighed on occupancy-driven income. In addition, an increase in taxes during the period also placed some pressure on overall revenue growth.
1H25 DPU of 3.00Scts was c.10% lower h/h – within our expectations, but below consensus. The softer DPU performance in 1H25 was mainly attributed to the weaker AUD and EUR against the SGD, higher financing costs, and the partial payment of management fees in cash. During the period, approximately 57% of management fees were paid in cash, a shift from the previous practice of paying fees entirely in units. To help buffer DPU, management also utilised approximately SGD18mn in distribution gains during the first half of the year. However, we understand that management intends to gradually reduce reliance on such distribution gains to support payouts moving forward, aiming for a more sustainable distribution profile over time.
Stable gearing and borrowing costs. In 2Q25, both gearing and borrowing costs saw a slight improvement, with gearing declining by 10bps q/q to 36.1%, and average borrowing costs falling by the same margin to 3.0%. The marginal improvement in borrowing costs was primarily due to lower interest rates on FLT’s floating-rate loans.
Looking ahead, c.SGD395mn in loans will be due for refinancing in the second half of FY25. This upcoming refinancing exercise could result in higher overall borrowing costs, particularly if market interest rates remain elevated or widen further. As a result, average borrowing costs are expected to rise and could potentially settle in the range of 3.3% to 3.5%.
Continued strong positive rental reversions of +19.2% in 2Q25. Strong rental reversions in 2Q25 were once again led by the logistics and industrial (L&I) portfolio. Positive rental reversions were recorded across both the Australia and Germany markets, resulting in a strong average uplift of +33% for the L&I segment during the quarter.
This performance was partially offset by a slight negative rental reversion in the commercial portfolio. While there were positive rental reversions in the UK and Australia, these were weighed down by negative reversions at the ATP in Singapore. As a result, the overall commercial portfolio recorded a marginal negative 0.3% rental reversion for the quarter. Including the strong performance in 1Q25, rental reversions for 1H25 stood at a robust +29.0%, underscoring continued leasing strength, particularly within the industrial segment.
Portfolio occupancy remains healthy at 93.9%. The portfolio occupancy rate declined slightly by 0.4ppt q/q to 93.9% in 2Q25. The L&I portfolio continues to remain virtually fully occupied, with the exception of a 10.5% vacancy at 2 Tuas South Link 1. However, this asset is protected by a rental guarantee in place until November 2026, providing income stability despite the temporary vacancy.
Within the commercial portfolio, the dip in occupancy was mainly attributable to ATP, where backfilling efforts are ongoing following the expiry of Google’s lease. The second tranche of Google’s lease expired in February 2025, contributing to the decline in ATP’s occupancy during the quarter. Nonetheless, with some space already backfilled, committed occupancy at ATP has improved to 77.1%. Actual occupancy currently stands at 66.4%, with the remaining 10.7% of space expected to be occupied later in the year. Meanwhile, occupancy levels at the other commercial properties remained relatively stable.
Our views
1H25 within expectations, slight adjustment to FY25 forecasts. Although FLT’s 1H25 DPU of 3.00Scts was in line with our earlier forecasts, we adjust it marginally due to currency outlook - continued weakness in the AUD, and the slower-than-expected backfilling of Google’s vacated space at ATP. Given the rising economic uncertainties and persistent global trade tensions, we believe it may take a longer timeline to secure replacement tenants at ATP, as well as for the other vacancies within the portfolio. Moreover, we could expect some non-renewals or right sizing of leases as they come due for the rest of the year. In addition, since FLT hedges its foreign exchange exposure on a 6-12-month forward basis, the current softness in the AUD will likely impact earnings through FY26.
With this latest earnings revision, our estimates would have already priced in ample risks and uncertainties to earnings. As we have also assumed a drop in divest gains distribution in our forecasts, future distributions that are higher than our assumptions will lead to upside to our numbers. Moreover, with a healthy gearing of only 36%, FLT has ample debt headroom to embark on accretive acquisitions that will help drive earnings upside as well.
Despite these near-term challenges, we continue to hold a positive view on FLT’s L&I portfolio. The segment is underpinned by a long WALE, high occupancy, and continued tenant demand (albeit at a slower pace as occupiers take longer to commit to leases amidst economic uncertainties), which should continue to deliver stable and healthy returns. We see the issues within the commercial portfolio – particularly at ATP – as a temporary overhang that will ease once leasing momentum picks up again. In addition, the counter is trading at 0.8x P/B which is -1.5 SD below its 5-year historical average, suggesting the headwinds could be priced in.
Given this outlook, we are maintaining our BUY recommendation, though we have slightly lowered our target price to SGD1.05 to reflect the downward revision in earnings projections.
FY Sep | 1H2024 | 2H2024 | 1H2025 | % chg y/y | % chg h/h |
Gross revenue | 216 | 231 | 232 | 7.5 | 0.7 |
Property expenses | (57.2) | (67.5) | (65.0) | 13.6 | (3.8) |
Net Property Income | 159 | 163 | 167 | 5.4 | 2.6 |
Other Operating expenses | (8.4) | (21.4) | (22.3) | 164.8 | 4.1 |
Other Non Opg (Exp)/Inc | (0.1) | 0.08 | (2.9) | nm | nm |
Associates & JV Inc | 0.0 | 0.0 | 0.0 | - | - |
Net Interest (Exp)/Inc | (28.3) | (35.4) | (39.0) | (37.5) | (10.1) |
Exceptional Gain/(Loss) | 0.0 | 0.0 | 0.0 | - | - |
Net Income | 122 | 106 | 103 | (15.4) | (3.0) |
Tax | (20.5) | (3.2) | (20.9) | 1.8 | 554.0 |
Minority Interest | (1.2) | 1.91 | (2.0) | (62.0) | nm |
Net Income after Tax | 100 | 105 | 80.3 | (19.9) | (23.6) |
Total Return | 93.6 | 57.8 | 80.3 | (14.2) | 39.1 |
Non-tax deductible Items | 21.5 | 41.3 | 13.1 | (38.9) | (68.2) |
Net Inc available for Dist. | 131 | 115 | 113 | (13.5) | (1.4) |
Ratio (%) |
|
|
|
|
|
Net Prop Inc Margin | 73.5 | 70.7 | 72.0 |
|
|
Dist. Payout Ratio | 100.0 | 100.0 | 100.0 |
|
|
Access more at DBS Insights Direct
GENERAL DISCLOSURE/DISCLAIMER
This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS Bank Ltd.
The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group, may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies.
Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to update the information in this report.
This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere.
There is no planned schedule or frequency for updating research publication relating to any issuer.
The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:
(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and
(b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein.
Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.
Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report.
DBSVUSA, a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making.
General | This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. |
Australia | This report is being distributed in Australia by DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”) or DBSV HK. DBS Bank Ltd holds Australian Financial Services Licence no. 475946. DBS Bank Ltd, DBSVS and DBSV HK are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, and DBSV HK is regulated by the Hong Kong Securities and Futures Commission under the laws of Hong Kong, which differ from Australian laws. Distribution of this report is intended only for “wholesale investors” within the meaning of the CA. |
Hong Kong | This report has been prepared by a personnel of DBS Bank, who is not licensed by the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on securities in Hong Kong pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). This report is being distributed in Hong Kong and is attributable to DBS Bank (Hong Kong) Limited (''DBS HK''), a registered institution registered with the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on securities pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). DBS Bank Ltd., Hong Kong Branch is a limited liability company incorporated in Singapore. For any query regarding the materials herein, please contact Dennis Lam (Reg No. AH8290) at [email protected] |
Indonesia | This report is being distributed in Indonesia by PT DBS Vickers Sekuritas Indonesia. |
Malaysia | This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies. |
Singapore | This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6878 8888 for matters arising from, or in connection with the report. |
Thailand | This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. For any query regarding the materials herein, please contact Chanpen Sirithanarattanakul at [email protected] |
United Kingdom | This report is produced by DBS Bank Ltd which is regulated by the Monetary Authority of Singapore. This report is disseminated in the United Kingdom by DBS Bank Ltd, London Branch (“DBS UK”). DBS Bank Ltd is regulated by the Monetary Authority of Singapore. DBS UK is authorised by the Prudential Regulation Authority and is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority. Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request. In respect of the United Kingdom, this report is solely intended for the clients of DBS UK, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS UK. This communication is directed at persons having professional experience in matters relating to investments. Any investment activity following from this communication will only be engaged in with such persons. Persons who do not have professional experience in matters relating to investments should not rely on this communication. |
Dubai International Financial Centre | This communication is provided to you as a Professional Client or Market Counterparty as defined in the DFSA Rulebook Conduct of Business Module (the "COB Module"), and should not be relied upon or acted on by any person which does not meet the criteria to be classified as a Professional Client or Market Counterparty under the DFSA rules. This communication is from the branch of DBS Bank Ltd operating in the Dubai International Financial Centre (the "DIFC") under the trading name "DBS Bank Ltd. (DIFC Branch)" ("DBS DIFC"), registered with the DIFC Registrar of Companies under number 156 and having its registered office at units 608 - 610, 6th Floor, Gate Precinct Building 5, PO Box 506538, DIFC, Dubai, United Arab Emirates. DBS DIFC is regulated by the Dubai Financial Services Authority (the "DFSA") with a DFSA reference number F000164. For more information on DBS DIFC and its affiliates, please see http://www.dbs.com/ae/our--network/default.page. Where this communication contains a research report, this research report is prepared by the entity referred to therein, which may be DBS Bank Ltd or a third party, and is provided to you by DBS DIFC. The research report has not been reviewed or authorised by the DFSA. Such research report is distributed on the express understanding that, whilst the information contained within is believed to be reliable, the information has not been independently verified by DBS DIFC. Unless otherwise indicated, this communication does not constitute an "Offer of Securities to the Public" as defined under Article 12 of the Markets Law (DIFC Law No.1 of 2012) or an "Offer of a Unit of a Fund" as defined under Article 19(2) of the Collective Investment Law (DIFC Law No.2 of 2010). The DFSA has no responsibility for reviewing or verifying this communication or any associated documents in connection with this investment and it is not subject to any form of regulation or approval by the DFSA. Accordingly, the DFSA has not approved this communication or any other associated documents in connection with this investment nor taken any steps to verify the information set out in this communication or any associated documents, and has no responsibility for them. The DFSA has not assessed the suitability of any investments to which the communication relates and, in respect of any Islamic investments (or other investments identified to be Shari'a compliant), neither we nor the DFSA has determined whether they are Shari'a compliant in any way. Any investments which this communication relates to may be illiquid and/or subject to restrictions on their resale. Prospective purchasers should conduct their own due diligence on any investments. If you do not understand the contents of this document you should consult an authorised financial adviser. |
United States | This report was prepared by DBS Bank Ltd. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate. |
Other jurisdictions | In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions. |
HONG KONG | SINGAPORE |
INDONESIA PT DBS Vickers Sekuritas (Indonesia) Contact: Maynard Priajaya Arif DBS Bank Tower Ciputra World 1, 32/F Jl. Prof. Dr. Satrio Kav. 3-5 Jakarta 12940, Indonesia Tel: 62 21 3003 4900 Fax: 6221 3003 4943 e-mail: [email protected] | THAILAND |
Related Stories
- Frasers Logistics & Commercial Trust: First Take: 1H25 Results - Some progress on the backfilling at ATP07 May 2025
- Frasers Logistics & Commercial Trust: ocused on core earnings06 Feb 2025
- Frasers Logistics & Commercial Trust: Results First Take: 1Q25 - 12-year lease renewal with largest tenant05 Feb 2025
Related Stories
- Frasers Logistics & Commercial Trust: First Take: 1H25 Results - Some progress on the backfilling at ATP07 May 2025
- Frasers Logistics & Commercial Trust: ocused on core earnings06 Feb 2025
- Frasers Logistics & Commercial Trust: Results First Take: 1Q25 - 12-year lease renewal with largest tenant05 Feb 2025