Frasers Logistics & Industrial Trust - OCBC Investment 2016-09-16: All primed for growth; initiate with BUY

Frasers Logistics & Industrial Trust - OCBC Investment 2016-09-16: All primed for growth; initiate with BUY FRASERS LOGISTICS & IND TRUST BUOU.SI

Frasers Logistics & Industrial Trust - All primed for growth; initiate with BUY

  • Large portfolio with positive attributes.
  • Organic and inorganic growth opportunities.
  • Initiate BUY with S$1.09 FV.

Owner of prime industrial and logistics assets in Australia 

  • Frasers Logistics & Industrial Trust (FLT) is a Singapore REIT which owns an Initial IPO Portfolio of 51 prime industrial and logistics assets strategically located within established industrial and logistics precincts across five states in Australia. 
  • Following the completion of the acquisition of two Call Option properties post listing, FLT’s portfolio now comprises 53 properties. 
  • Its initial IPO portfolio is made up of 60.0% freehold assets, 30.2% assets with long leasehold land tenure of at least 80 years and the remaining 9.8% assets with leasehold land tenure between 17-37 years (by appraised value). 
  • In addition, it has a high portfolio occupancy rate of 98.3% (as at Listing Date) with a diverse and high quality tenant base spread across a broad range of sectors. Its portfolio WALE is also relatively long at 6.9 years.

Positive demand-supply dynamics within Australia’s industrial space 

  • According to property consultancy firm Jones Lang LaSalle (JLL), the supply of industrial assets in Australia is expected to come in below the 10- year annual average of 1.7m sq m in 2016. This pipeline is largely contributed by projects in the planning stages. 
  • On the other hand, demand, as measured by occupier take-up, was 2.3m sq m in 2015. This exceeded the 10-year average of 2.0m sq m. 
  • Hence, we believe the current demand-supply dynamics are favourable within Australia’s industrial real estate market.

Initiate coverage with BUY 

  • We believe FLT has ample avenues to spur its future growth. This would come in the form of both organic and inorganic growth drivers. 
  • We forecast FLT’s distribution to unitholders to increase 20.1% from A$71.9m in FY15 (pro forma) to A$86.3m in FY16, before growing another 9.9% to A$94.9m in FY17. 
  • Our DPU forecasts for FY16 and FY17 are 6.2 S cents and 6.7 S cents (based on an exchange rate of A$1.00 = S$1.02), which translate into distribution yields of 6.5% and 7.1%, respectively. 
  • Valuing FLT using the dividend discount model (DDM), we derive a fair value estimate of S$1.09 after inputting our financial forecasts and capital asset pricing model (CAPM) assumptions (risk-free rate: 2.4%, market risk premium: 7.3%, adjusted beta: 0.714, cost of equity: 7.6%, terminal growth rate: 1.5%) in our model. 
  • Initiate coverage with a BUY rating.

Wong Teck Ching Andy CFA OCBC Investment | http://www.ocbcresearch.com/ 2016-09-16
OCBC Investment SGX Stock Analyst Report BUY Initiate BUY 1.09 Same 1.09