SINGAPORE (April 24): CIMB Investment Research is initiating coverage on Frasers Logistics & Industrial Trust (FLT) at “add” with a $1.10 target price, naming the trust as one of its sector preferred picks in place of CDL Hospitality Trusts (CD REIT) after the latter’s YTD 10% outperformance.

In a report last Friday, analysts Yeo Zhi Bin and Lock Mun Yee say the price target translates to total returns of 18% – one of the “meatiest” in the research house’s coverage, in their view.

FLT is the first Singapore REIT (S-REIT) with an initial pure-play Australian industrial portfolio as well as the fourth largest industrial owner in Australia.

“Our economist at Morgans (our Australian JV partner) expects [Australia’s] GDP growth to accelerate moderately at 3% for 2017. Rising consumption, e-commerce and internalisation of the retail sector is driving demand for 3PLs and logistics facilities. This has led to favourable supply-demand dynamics where cap rate compression, tightening occupancy and rental growth have been observed,” elaborate the analysts.

According to Lock and Yeo, FLT’s portfolio “ticks all the checkboxes” given its properties’ location in core markets with strong connectivity to key infrastructure; a predominantly freehold/long leasehold and young portfolio; as well as a quality tenant base behind the trust’s high portfolio occupancy and long WALE.

Additionally, its sponsor, Frasers Centrepoint Limited (FCL), is a market leader in Australia’s industrial sector – and has an end-to-end development platform through Frasers Property Australia (FPA).

“Further, FPA has a development pipeline with an estimated completed value of A$850 million, which offers FLT a strategic avenue to pursue inorganic growth, especially with an increasingly low availability of prime assets,” comment Lock and Yeo.

“Among the industrial S-REITs, FLT is not only unique due to its pure-play exposure to Australian industrials. Its market cap is just above US$1 billion, making the stock and Keppel DC REIT the two mid-caps which interpose between the three government-linked large caps (Ascendas REIT, Mapletree Industrial Trust and Mapletree Logistics Trust) and a host of independent smaller-cap REITs,” they add.

As at 11:27, units of FLT are trading 0.5% lower at $1.02.