SINGAPORE (Oct 10): CIMB is maintaining its “add” on Frasers Logistics & Industrial Trust with higher $1.20 target price, projecting total returns of 17% for FY18.
This is based on the REIT’s ability to tap Frasers Centrepoint’s Australian development pipeline and increasingly low availability of prime assets, fuelled by capital chasing core assets.
“This puts FLT at an advantage vs. the other S-REITs which are diversifying into Australia,” says analyst Yeo Zhi Bin in a Monday report.
After looking at some of the metrics tracked by Knight Frank which include vacancy, takeup rate and average letting up period, Yeo believes Australian industrials remaining firmly in an upcycle.
“These metrics all point to an ‘up’. In summary, Sydney remains the strongest market, thanks to limited available space and strong economic activity. Melbourne is also benefiting from good demand and population growth. Brisbane remains challenging but the worst is likely over, in our view,” says Yeo.
Yeo is also incorporating FLT’s first portfolio acquisition of seven properties -- valued at $179 million with initial portfolio yield of 6.41% -- as well as the accompanying private placement of 78 million new units at $1.01/unit, into its earnings model.
“To reiterate, we view the portfolio acquisition positively given the quality characteristics of long WALE of 9.6 years and 100% takeup rate as well as the evident sponsor commitment,” says Yeo.
Given Frasers Property Australia’s development pipeline of A$850 million ($899 million), Yeo expects Frasers Logistics to maintain an acquisition rate of $159-$212 million over the next two years.
Over the longer term, as Australian property market peaks and contingent on market cycles, the analyst says it is possible that FLT could acquire European assets from Geneba Properties, Frasers Centrepoint’s newly acquired European logistics and industrials platform.
As at 10.27am, units of Frasers Logistics are trading at $1.09 or 1.19 times FY18 book with a dividend yield of 6.92%.
