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5 reasons to subscribe for Frasers Logistics & Industrial Trust: Lim & Tan
By Michelle Zhu
SINGAPORE (June 15): Lim & Tan Securities is making a “subscribe” call for Frasers Logistics & Industrial Trust (FLT) at an IPO price of 89 cents each. This comes ahead of FLT’s public offer tranche closure on Thursday at noon.
In a Wednesday report, Lim & Tan’s Singapore research team says FLT’s dividend yield of 6.8% for September this year and 7.3% for September 2017 is “attractive” compared to A-REIT’s dividend yield figures of 6.5% and 7% respectively. Its price to book of 1x is also cheaper than A-REIT’s 1.13x, it adds.
Furthermore, the team notes that the trust has hedged about half of their Australian dollar exposure, which is beneficial as the Australian dollar has already declined significantly against the Singapore dollar such that it is currently almost at parity.
The research house also lists the following reasons for its recommendation to subscribe:
1. Some alignment of interest for minority shareholders After the listing, the research house expects Frasers Centrepoint and TCC Asset to hold 22.5% and 6.3% of FLT respectively, which will help to provide “some alignment of interest” with minority shareholders.
2. Expectations of solid investor endorsement Close to half of the issue or 493 million units have already been taken up by 15 reputable cornerstone investors, which are mainly long-funds such as Morgan Stanley Investment Management, Blackrock Funds and DBS Bank. Lim & Tan says such investors “should help provide endorsement and stability to the offer”.
3. Attractive leasehold tenures and lease to expiry Compared to average tenure periods of 30-60 years offered by other Singapore-listed industrial and logistics IPOs, 30% of IPO’s portfolio will have a leasehold tenure of at least 80 years. 60% of the properties’ appraised value of $1.58 billion are freehold assets. The portfolio has a long-weighted average lease to expiry of about 7 years, with an expected average annual escalation of 3% that provides assured organic growth.
4. Set for portfolio growth Lim & Tan highlights FLT’s “well-mapped out” growth trajectory, with a call option for three properties, which are still under development, to be injected into the trust shortly after its IPO such that its portfolio size will increase from 51 to 54. The properties have already been 100% committed to incoming tenants, and is expected to be fully debt funded.
5. Low gearing ratio At 29%, FLT’s gearing ratio at IPO is considered low compared to the regulatory limit of 45% as well as its peer group average of 40%, says the research team. As such, the trust enjoys significant debt headroom to complete DPU accretive acquisitions without a need for dilutive equity issuances. Even with the acquisition of the three properties (point 4), FLT’s gearing ratio at 31-32% will still allow for debt headroom to potentially acquire 9 properties that its sponsor has granted FLT right of first refusal for.
FLT’s IPO portfolio is valued at $1.6 billion, and is Singapore’s biggest new listing in three years. It comprises 51 logistic and industrial properties with gross lettable area 1.2 million sqm of properties in three Australian cities.
Trading of FLT’s IPO shares will start on the SGX this June 21.
Source: The Edge