Frasers Logistics And Industrial Trust’s IPO: What Investors Should Know

Singapore’s stock market is home to many real estate investment trusts and business trusts. It appears that a new REIT – Frasers Logistics and Industrial Trust – will be joining the ranks soon.

The REIT’s sponsor and manager is Frasers Centrepoint Ltd (SGX: TQ5) and it will be the first pure-play Australian industrial REIT in the Singapore stock market. Frasers Logistics and Industrial REIT will also be the fourth REIT in Singapore under Frasers Centrepoint’s umbrella – the other three are Frasers Centrepoint Trust (SGX: J69U), Frasers Hospitality Trust (SGX: ACV), and Frasers Commercial Trust (SGX: ND8U).

Here are a few other important things about the REIT that I have gleaned from its preliminary initial public offering (IPO) prospectus.

The offer details

The REIT’s offer will open to the public on 10 June 2016 and will close on 16 June, with trading to commence on 21 June. It’s important to note that these dates are currently still subject to change.

Frasers Logistics and Industrial Trust has the intention to offer 517.5 million units to the public and institutional investors in the listing exercise. Another 492.8 million units will be offered to a group of 15 cornerstone investors that are mostly made up of financial institutions. Frasers Centrepoint is expected to hold a 22.5% stake in the REIT after the IPO.

All told, Frasers Logistics and Industrial Trust will have 1.425 billion units outstanding at listing. The REIT hopes to raise around S$900 million by offering its units for a price of between S$0.85 and S$0.89 each.

The properties

Frasers Logistics and Industrial Trust’s initial portfolio will comprise of 51 properties, with a total appraised value of A$1.585 billion (around S$1.6 billion), that are all located in Australia. This includes two properties that are currently still under development. The REIT will be purchasing the portfolio for A$1.578 billion, a sum that’s slightly smaller than the appraised value.

These properties, which are mainly used for industrial and logistical purposes, are located in five Australian cities as you can see in the table below:

City Number of properties
Melbourne (Victoria) 25
Sydney (New South Wales) 12
Brisbane (Queensland) 9
Adelaide (South Australia) 4
Perth (Western Australia) 1

Source: Frasers Logistics and Industrial Trust’s preliminary IPO prospectus

In addition to the 51 properties, the REIT has also entered into call option agreements that could see it potentially acquire another three properties which are currently under development. The IPO portfolio of 51 properties have a weighted average lease expiry (WALE) of 6.9 years. All of the leases in the REIT’s IPO portfolio have built-in rental increments that are fixed or linked to inflation. The portfolio has an average annual rental increment rate of 3.2%.

The properties also have a strong occupancy rate of 98.3% and are relatively young with an average age of just 6.1 years.

In terms of land tenure, 60.0% of the IPO portfolio’s appraised value are freehold assets while 30.2% have leasehold tenure of at least 80 years.

Distribution yields, leverage, and valuation

Frasers Logistics and Industrial Trust will have a financial year that ends on September. For the period from 1 June 2016 to 30 September 2016, the REIT has projected a distribution per unit ranging from 1.98 cents (for the minimum offering price of S$0.85) and 2.03 cents (for the maximum offering price of S$0.89).

As for the fiscal year ended 30 September 2017, the REIT foresees a distribution per unit of 6.37 cents (for the minimum offering price) and 6.50 cents (for the maximum offering price). This works out to a forward yield of 7.5% at the lowest offering price and 7.3% at the highest offering price.

At listing, the REIT will also have a gearing ratio of 29% at the minimum offering price, which is below the regulatory limit of 45%. The REIT’s cost of debt stands at approximately 3.4% and its manager plans to hedge at least 50% of the total borrowings.

Lastly, Frasers Logistics and Industrial Trust’s minimum offering price will see it being priced at a 2.8% premium to its net asset value per unit. That equates to a price-to-book ratio of 1.028.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Esjay does not own shares in any companies mentioned.