DBS starts coverage of Frasers Logistics and Industrial Trust

Gwyneth Yeo

SINGAPORE (July 29): DBS Group Research is starting coverage for Frasers Logistics and Industrial Trust with a &ldquo buy&rdquo recommendation and a target price of $1.10.

FLT is a Singapore REIT with a portfolio of Australian industrial properties. Its initial portfolio comprises 51 industrial and logistics assets, with an appraised value of A$1.6 billion ($1.6 billion), that are largely located in Sydney, Melbourne, and Brisbane. FLT is managed by subsidiaries of Frasers Centrepoint, which owns a combined stake of 29% in the REIT together with its largest shareholder TCC Group.

DBS&rsquo s analyst Derek Tan says the trust&rsquo s fairly low gearing of 31% will enable it to &ldquo deliver further upside to earnings through acquisitions&rdquo . Coupled with the three call option properties, Tan believes FLT &ldquo will be one of the fastest-growing industrial REITs&rdquo , offering investors a 7% growth in DPU for FY2016 and FY2017.

Tan says that the trust&rsquo s weighted average lease expiry (WALE) of 6.9 years is one of the longest amongst industrial REITs, and provides strong earnings visibility. Furthermore, its annual rental escalation of 3.02% is also expected to provide steady increases in distributions for the medium term, says Tan.

On the bright side, FLT is currently trading at a dividend yield of 6.7%, while the rest of the Singapore industrial REITs are trading in a dividend yield range of 6.1% to 13.5%. &ldquo We think the stock is fairly valued and prices in the potential positives of near-term dividend growth and exposure to compressing cap rates in Australian logistics assets,&rdquo concludes Ng.

Units in FLT closed 1% lower at 99 cents.