FLCT to divest commercial building in Australia for A$192.1 million, exiting Melbourne CBD office market

Frasers Logistics & Commercial Trust (FLCT) will divest an office building in Melbourne’s Central Business District (CDB) for A$192.1 million (S$161.4 million), as it seeks to exit the Australian city’s office market and focus on logistics and industrial properties.

The divestment consideration represents a 0.6 per cent premium over an independent valuation of A$191 million as at Jun 1, 2025, the manager of FLCT said in a bourse filing on Wednesday (Jul 16). The amount will be paid in cash.

The sum is also based on a sale price of A$195.3 million, after deducting outstanding tenant lease incentive liabilities, the manager added.

The purchaser of the 25-storey freehold office building, located at 357 Collins Street, is an unrelated third party. The sale will be conducted through Collins Street Landholding Trust, a sub-trust of FLCT.

FLCT’s manager noted that the asset valuation has remained at around A$191 million since September 2024, “reflecting challenging market conditions in the Melbourne CBD office sector”.

It said that the divestment marks a strategic exit from the sector, which “continues to suffer from remote work culture” and an elevated vacancy level of 18.6 per cent. Subdued tenant demand has also led to rising incentives.

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After the divestment, FLCT’s portfolio weighting towards logistics and industrial assets is expected to increase to 74.2 per cent from 72.4 per cent, “in line with FLCT’s strategic objective of achieving higher allocation to high-quality” properties within that segment, the manager said.

It added that the divestment – expected to be completed by Sep 30 – will raise FLCT’s overall portfolio occupancy rate to 95.2 per cent from 93.9 per cent, and enhance the weighted average lease expiry profile to 4.8 years from 4.6 years.

Anthea Lee, chief executive officer of FLCT’s manager, noted that the move “represents another strategic step in our ongoing portfolio reconstitution, which allows us to extract value from a commercial property and re-weight our portfolio towards logistics and industrial properties”.

“The proceeds from the sale will also provide FLCT with enhanced financial flexibility to pursue opportunities in the logistics and industrial space,” she added.

The manager estimates net proceeds of S$159.3 million, after a projected divestment cost of S$2.1 million. The amount will be used to fund acquisition opportunities, repay existing debt, and for general corporate and working capital requirements, the manager added.

It also noted that if the proceeds are fully used to repay debt, FLCT’s aggregate leverage would be lowered by 1.5 percentage points to 34.6 per cent from 36.1 per cent on a pro forma basis. The trust’s debt headroom will also rise to around S$2.1 billion post-divestment.

Units of FLCT closed Wednesday up 0.6 per cent or S$0.005 at S$0.855, before the announcement.