The first pure-play Australian logistics and industrial real estate investment trust to list here has many of the virtues an investor would like in a Reit.
Going by the enthusiasm among institutional investors ahead of yesterday's initial public offering launch - the placement tranche was more than six times subscribed - market sentiment for Frasers Logistics and Industrial Trust (FLT) is strong.
A rule of thumb, it's sometimes said, is to follow the institutional investors. For one thing, the distribution yields of 6.8 per cent for forecast period 2016 and 7.3 per cent for projection year 2017 are higher than those of some large industrial Reits.
There is also potential upside for the distribution projection. FLT has call options to acquire up to three more properties that are being developed by Frasers Property Australia and which have been fully pre-leased. This could boost distribution yield by about 0.28 per cent to 0.3 per cent.
Analysts mainly painted a glowing picture of FLT's portfolio, which consists of 51 assets, mainly on the eastern coast of Australia, including Sydney, Melbourne and Brisbane. It has a weighted average lease expiry of 6.9 years, compared with a typical three to five years for other industrial players, said Mr Ivan Looi, investment analyst at RHB Research Institute.
Just 0.9 per cent of leases by adjusted gross rental income are expiring in the forecast period 2016 and projection year 2017.
Mr Tata Goeyardi, director of Asean sales at Religare Capital Markets, said: "This is minuscule compared to the double-digit average for Ascendas Reit, Mapletree Industrial Trust and Mapletree Logistics Trust."
The portfolio also comes with fixed rental increments that have been built into existing leases and which work out to an annual rental escalation of about 3.2 per cent for the IPO portfolio.
This would certainly provide some resilience in income distribution, Mr Looi noted.
Apart from that, FLT has a ready pipeline. Apart from the call option properties, the trust has another nine completed properties owned by Frasers Property Australia to which it will have right of first refusal.
These were not included in the IPO portfolio as they did not yet have good visibility of income, said the Reit manager's chief executive Robert Wallace on Thursday. Frasers Property Australia is close to signing tenants for two of these.
The firm also has an industrial property development pipeline in Australia of about A$850 million (S$853 million) to be completed over the next five years.
Gearing is healthy at 29 per cent. Assuming the three call options will be exercised, gearing could rise to 35 per cent, leaving another A$160 million of debt room capacity for more acquisitions before it hits 40 per cent, said Mr Goeyardi.
Finally, a potential upside could come should an S-Reit exchange- traded fund (ETF) be launched in the second half of the year, as planned by the Singapore Exchange. "Given the size of FLT, there is a high chance it will be included in the ETF. This will attract passive inflow into this Reit and boost its liquidity," said CMC markets analyst Margaret Yang.
