SINGAPORE (June 7): Four brokerages have expressed positive sentiment on news of Frasers Logistics & Industrial Trust’s (FLT) latest announcement of its maiden portfolio acquisition, and are thus unanimously reiterating their recommendations to buy the REIT as a result.
To recap, the manager of the REIT on Tuesday announced that it would be acquiring freehold and leasehold interests in seven industrial properties in Australia for approximately A$168.3 million ($173.8 million) in total.
(See also: Frasers Logistics acquiring 7 more assets from sponsor for $174 mil)
DBS Vickers Securities’ analysts give FLT a price target estimate of $1.10 and say they like the metrics of the deal – namely a long weighted average lease expiry (WALE), quality tenant base and a projected accretion to distribution per unit (DPU), as pro-forma DPU is expected to grow 1% to 5.38 cents from 5.33 cents previously.
“These attributes are positives which we believe that investors will like, and see this as a re-rating catalyst for the stock,” say the analysts in a report on Wednesday.
Likewise, OCBC Investment Research lead analyst Andy Wong states that he is positive on the transaction for the portfolio’s high occupancy rate, long WALE and built-in annual rent escalations of 3.1% embedded in the leases.
He also believes the properties’ average age of 2.4 years signifies minimal maintenance capex requirements ahead – another positive in addition to the fact that six of the properties are built on freehold land, while the other on leasehold land still has 89 years remaining.
The research house has a fair value estimate of $1.12 on the REIT.
“FLT is required to obtain approval from unitholders at an EGM given that this is an interested party transaction. Pending such approval and finalisation of the actual funding structure for this transaction, we keep our forecasts for now. However, we expect management to utilise a capital structure which will be DPU-accretive to unitholders and hence see upside to our projections,” comments Wong in a report issued on Wednesday.
Noting similar positive on the terms of FLT’s impending deal, Lim & Tan Securities highlights the REIT for its undemanding 1.1 times P/B valuation and attractive yield of 6.8%.
“These acquisitions are in line with [the management’s] investment strategy to pursue asset acquisitions that provide attractive cash flows and yields. Going forward, FLT will continue to assess opportunities that are complementary to the existing FLT portfolio in order to achieve long-term growth in DPU, while maintaining an appropriate capital mix,” writes the research team in a Wednesday report.
DBS, OCBC and Lim & Tan are all maintaining their “buy” recommendations on the REIT.
CIMB Securities, too, continues to rate FLT at “buy” with an unchanged price target estimate of $1.10 while underscoring its position as one of its preferred picks within the sector.
Its analysts, Yeo Zhi Bin and Lock Mun Yee, express the belief that the acquisition could catalyse the REIT’s unit price and hence narrow the valuation gap with big-cap industrial S-REITs.
“We continue to like the REIT for its pure exposure to the favourable Australia market as well as strong sponsor support,” they state in a report on Tuesday. “Key downside risk is a turn in the Australia market.”
As at 10:33, units of FLT are trading 2.4% higher at $1.06.
