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

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.

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.

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