3 Things To Be Aware Of If You Are Thinking Of Investing In Frasers Logistics and Industrial Trust

The largest initial public offering (IPO) taking place in Singapore’s stock market so far this year is that of Frasers Logistics and Industrial Trust (SGX: BUOU), a real estate investment trust that currently has a portfolio of Australian industrial properties.

It wouldn’t be a stretch to say that the real estate investment trust is a popular choice amongst investors: Its IPO was over-subscribed by more than six times. Based on the listing price of its units of S$0.89, Frasers Logistics and Industrial Trust would be raising S$903 million.

Units of the REIT have started trading for the first time about an hour ago at 9.00am. The REIT is sponsored, managed, and partly-owned by Frasers Centrepoint Limited (SGX: TQ5), which also has three other REITs under its belt.

For investors who are thinking of investing in Frasers Logistics and Industrial Trust, here are three things to note.

Currency risks

Frasers Logistics and Industrial Trust has positioned itself as a pure-play Australian Industrial REIT. It means that the REIT would most likely focus on Australian properties for the foreseeable future.

Right now, the REIT owns 51 properties that are located in five Australian cities, namely, Melbourne, Sydney, Brisbane, Adelaide, and Perth.

Investors in Singapore need to be aware of the currency risks involved, given that the REIT is giving out distributions in Singapore and/or Australian dollars (investors get to choose) and collecting Australian dollar-denominated rental income.

Although the REIT’s manager has the intention to hedge 100% of its distribution income (which are in the Australian dollar) up to its fiscal year ended 30 September 2017, the risk of unfavourable currency swings between the Singapore dollar and Australian dollar in the future is still something to keep in mind.

Distribution yield

Frasers Logistics and Industrial Trust has a distribution yield of 6.8% based on its listing price and an annualised distribution per unit for its fiscal 2016. If I compare the REIT’s yield with some of the other industrial REITs listed in Singapore, it does not look to be very attractive.

Source: S&P Capital Market Intelligence

From the chart above, Frasers Logistics and Industrial Trust’s yield is lower than that of Cache Logistics Trust (SGX: K2LU) and AIMS AMP Capital Industrial REIT (SGX: O5RU) and comparable with that of Ascendas Real Estate Investment Trust (SGX: A17U),  Mapletree Industrial Trust (SGX: ME8U), and Mapletree Logistics Trust (SGX: M44U).

Growth potential

The growth potential of Frasers Logistics and Industrial Trust might be what allows it to stand out from its peers.

Although the REIT currently owns more than 1.2 million square feet of lettable space, that is still only a fraction of what its sponsor has: Frasers Property Australia controls over 3.0 million square feet of industrial space and land suited for development in Australia. There might be potential for Frasers Logistics and Industrial Trust to purchase more properties from Frasers Property Australia in the future to boost its asset base and distributions.

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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 writer Stanley Lim owns shares in Frasers Centrepoint.