Frasers Logistics & Commercial Trust: <FY25 Results> Earnings turnaround in the coming year
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- FY25 DPU of 5.95 Scts in in line with our estimates despite a reduction in capital distributions
- Portfolio occupancy improved to 95.1%; driven by the L&I portfolio
- Strong positive rental reversions of +29.5% in FY25; further positive rental reversions expected in FY26
- Maintain BUY with unchanged TP of SGD1.05
Higher revenues and NPI. Revenue rose on both h/h and y/y basis, supported by acquisition of 2 Tuas South Link 1 (Nov 2024) and better contributions from Europe. 2H25 revenue increased to SGD239.2mn, up c.3.0% from 1H25 and up c.3.7% from 2H24, as FLCT booked a full six months of the Netherlands Maastricht logistics development that commenced in Oct 2024, stronger UK business park income and the first full period of the Singapore logistics asset. Adjusted NPI similarly improved to SGD164.9mn in 2H25, up c.2.2% h/h and c.2.2% y/y, although the uplift was moderated by weaker AUD/SGD translation and higher non-recoverable Australian land taxes that took effect in Victoria and Queensland during 2024.
FY25 DPU in line with estimates despite lower capital gains distribution. Distributions declined y/y mainly due to higher borrowing costs and a lower capital distribution. FY25 DPU was 5.95 Scts, 12.5% lower than 6.80 Scts in FY24, due to higher finance costs, higher tax expense and a smaller divestment-related top up. 2H25 DPU was 2.95 Scts, which was c.1.7% lower than 1H25’s 3.00 Scts and c.11.1% below 2H24’s 3.32 Scts, mainly because capital distribution from divestment gains fell sharply to 0.26 Scts from 0.75 Scts in 2H24. Core DPU before capital distribution improved to 2.69 Scts in 2H25 from 2.52 Scts in 1H25 and from 2.57 cents in 2H24.
Looking ahead, we understand that future capital distributions in FY26 will not exceed the 2H25 level (ie. 0.26 Scts per half year), which suggests that future growth in DPU will come from organic rental growth, better occupancy and acquisitions rather than one-off support.
Borrowing costs expected to continue inching up in FY26. Aggregate leverage decreased to 35.7% in 4Q25, which was 1.2 ppt lower q/q. Cost of borrowing remained relatively stable q/q at 3.1% on a trailing 12-month basis and 3.2% on a trailing 3-month basis. Finance costs climbed 19.5% y/y in 2H25 to as refinancing was done at higher rates (c.30bps higher y/y) and as borrowings were drawn to fund acquisitions.
As FY26 loans are gradually refinanced, we understand that FLCT’s overall borrowing cost is expected to inch up a further 10-20bps, primary due to the refinancing of the EUR-denominated loans in 1H26.
Portfolio occupancy improved 2.6ppt. Portfolio operating metrics strengthened during the period, led by the logistics and industrial segment. Occupancy improved to 95.1% in 4Q25 (compared to 92.5% in 3Q25), supported by healthy take-up in Singapore and Australia L&I portfolio, as well as the divestment of 357 Collins Street (c.76% occupancy). The core logistics and industrial portfolio was almost fully occupied at 99.7%, which continues to be the main anchor for income stability, while occupancy for the commercial portfolio remains relatively soft at 86.1%. Following the end of 4Q25, we understand that two additional leases were signed at ATP that will lift occupancy at the property to c.88% (from 77.9% currently).
Strong positive rental reversions of +29.5% in FY25. Rental growth indicators remained strong, with average reversions of +5.0% on an incoming versus outgoing rent basis and +29.5% on an average rent versus average rent basis. The outperformance was in logistics and industrial, particularly in Australia and Europe. With average passing rents still significantly below market rents, we understand that rental reversions in the year ahead will likely remain in the positive territory.
However, rental reversions for the commercial portfolio remained flat on a average versus average basis, or -3.9% on an incoming versus outgoing basis. This was mainly due to increase in supply of commercial space in Singapore and the UK, making the landscape more competitive and capping rental growth potential.
Asset values remained inched up slightly by c.0.5%. Despite currency headwinds (mainly from AUD), FLCT’s asset values were slightly higher. This was mainly due to the acquisition of 2 Tuas South Link 1, which offset the divestment of 357 Collins Street in Melbourne and the weaker AUD. L&I portfolio was up 1.5% to SGD5.2bn and commercial assets down 2.3% to SGD1.7bn. Cap rates remained relatively stable y/y across most markets and segments, with the only the UK commercial portfolio experiencing a marginal expansion.
Our views
Looking ahead into FY26, leasing risk remains concentrated in the commercial portfolio rather than in the L&I portfolio. The L&I portfolio is effectively fully occupied and has shown an ability to renew at double-digit rent uplifts. In contrast, the commercial portfolio occupancy rate currently stands at only 86.1%. Even as the committed occupancy rate at ATP gradually picks up, some of the recently committed leases will only commence income contribution several quarters later.
On the capital management front, gearing of 35.7% provides FLCT with ample debt headroom. However, we will be keeping a close eye on overall financing costs as it is expected to continue inching up by 10-20bps when the EUR-denominated loans (equivalent to SGD304mn) are refinanced in 1H26 at higher rates.
Despite this, we like FLCT’s concentration on L&I assets that continue to outperform and deliver strong positive rental reversions. Furthermore, although the commercial portfolio is currently experiencing some softness, we believe it will gradually improve in the year ahead, as evidenced by the leasing progress at ATP. Borrowing cost is expected to peak somewhere in the middle of FY26, before improving. The key will be how soon the ECB and RBA embark on their next interest rate cuts, and a sooner than expected rate cut could lead to a turnaround in borrowing costs before the 1H26.
We will be maintaining our BUY recommendation with TP unchanged at SGD1.05.
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- Frasers Logistics & Commercial Trust: 3Q25 business update: Strong positive rental reversions to support earnings resilience01 Aug 2025
- Frasers Logistics & Commercial Trust: Exiting the challenging Melbourne office market17 Jul 2025