Frasers Logistics and Commercial Trust: Distributions May Decline but Units Undervalued

Frasers Logistics and Commercial Trust’s first-quarter fiscal 2025 (ending September) business update was in line with our expectations. Management highlighted that they would like to use their debt headroom to pursue growth and may reduce some of the capital gains distribution from its divestment gains. That said, they are mindful of investors’ concern over the impact it may have on its distribution per unit, and shared that they will look to strike a balance between growth and unitholders’ return. We are cutting our fiscal 2025-27 DPU estimates by 5.3%-6.6% after lowering our capital distribution forecasts and increasing our financing cost assumptions to account for the higher for longer interest rate environment. However, our fair value estimate of SGD 1.14 per unit is retained as our key assumptions on the terminal value remain intact. We think the units are undervalued currently and like the trust’s portfolio of high-quality logistics and industrial assets in Australia, which are still enjoying favorable demand and supply dynamics.