Frasers Logistics & Industrial Trust - DBS Research 2016-07-29: Cheapest industrial reit in Australia

FRASERS LOGISTICS & IND TRUST BUOU.SI

Frasers Logistics & Industrial Trust - Cheapest industrial reit in Australia

Unique exposure to Australian industrial market which offers an attractive combination of solid demand and constrained supply growth.
An attractive multi-pronged growth engine with flexibility to acquire assets supported by an under- geared balance sheet.
Initiate with BUY; TP of S$1.10 offers total return of 18%.

Frasers Logistics & Industrial Trust (FLT) provides investors a gateway to the Australian industrial and logistics market offering an attractive combination of solid demand and relatively constrained new supply growth.
FLT’s initial portfolio consists of 51 properties spread across five states in Australia with an appraised value of A$1,584.6m. The initial portfolio is well diversified across the key states of Victoria (40% of appraised value), New South Wales (28%) and Queensland (28%).

FLT offers superior income visibility through having a long weighted average lease expiry (WALE) of 6.9 years, one of the longest amongst industrial REITs.
Annual escalations of c.3.02% imply steady increments to distributions in the medium term.
In addition, given the under-geared balance sheet, the expected acquisition of three call option properties in the near term will mean that FLT will be one of the fastest-growing industrial REITs, offering investors a 7.0% growth in DPU over FY16F-17F. That said, with gearing still expected to remain fairly low at 31%, we believe that FLT is equipped to deliver further upside to earnings through acquisitions.
Assuming a target gearing of 35-40%, this implies a 6-14% upside to estimates.

We initiate FLT with a BUY rating and TP of S$1.10, offering a potential total return of 18%.
We believe that FLT’s low gearing will mean the ability to debt fund its acquisitions to grow its AUM and distributions.
Our target price assumes a FY17F target yield of 6.0% which we believe to be fair given the REITs’ strong earnings visibility and ability to acquire.

Derek Tan DBS Vickers | Mervin Song CFA DBS Vickers | Rachel TAN DBS Vickers | http://www.dbsvickers.com/ 2016-07-29

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