SINGAPORE (Jan 10): OCBC Investment Research is remaining “neutral” on Singapore REITs while highlighting Frasers Logistics & Industrial Trust (FLT) as its preferred “buy” pick within the industrial REIT subsector with a fair value estimate of $1.25.
See: Frasers Logistics reports 4Q DPU of 1.77 cents, 8.6% above forecast
In a Wednesday note, analyst Andy Wong highlights how industrial REITs have continued to be active in driving their inorganic growth strategy in over the past two months, with Mapletree Logistics Trust (MLT) most recently announcing last Friday its intentions to acquire the remaining 38% strata share value of Shatin No. 3 in Hong Kong for about $103.7 million.
See: MapletreeLog acquiring remaining 38% of HK warehouse in Shatin for $104 mil
“Although this property was acquired with vacant possession (except for one floor, which will be leased back to the vendor), MLT will be spending capex of ~HK$30 million on AEI to enhance the attractiveness of the asset,” observes the analyst.
Another example is Ascendas REIT (A-REIT), he adds, which in late Dec 2017 announced its completion of a Brisbane based suburban office for about $109 million, translating to an initial net property income (NPI) yield of 6.5% pre-transaction costs or 6.1% post-transaction costs.
However, Wong emphasises that not all acquisitions by industrial REITs were done overseas – as evident through ESR REIT’s recent acquisition of an 80% stake in a high-specifications building at 7000 Ang Mo Kio Avenue 5.
See: ESR-REIT acquires 80% of AMK high-specs building for $243.5 mil
“We see room for more distribution per unit (DPU) accretive acquisitions this year [for FLT] given its healthy gearing ratio and strong pipeline of potential acquisition targets from its sponsor,” concludes Wong on the REIT as OCBC’s preferred pick.
See: Here's why Frasers Logistics remains one of OCBC's top picks
As at 10:34am, units in FLT are trading 1 cent lower at $1.18, implying an FY18F distribution yield of 6.8%.