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

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%.

Unique exposure to Australia industrial market. 

  • 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%).

An attractive multi-pronged growth engine. 

  • 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.

Initiate with BUY, TP S$1.10. 

  • 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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