The Motley Fool

3 Reasons Why I Like Frasers Logistics and Industrial Trust

Since I bought Frasers Logistics and Industrial Trust (SGX: BUOU) last year at an average price of S$1.05, its units have climbed around 15%. Despite the run-up in price, I still believe it remains an attractive investment. With that in mind, here are three reasons why I intend to hold on to this industrial-focused real estate investment trust (REIT) for now.

Favourable leases

Frasers Logistics and Industrial Trust, which is backed by property giant Frasers Property Ltd (SGX: TQ5), boasts a solid portfolio of properties with favourable leases. As of 30 June 2019, it had 59 Australian properties and 22 European properties. 

The properties in Australia have a weighted average lease expiry of six years and negotiated annual rental increment of 3.1%. 92% of its European properties also have either fixed or consumer price index-linked yearly escalations. These built-in annual rental escalations and long leases will provide the REIT with higher rental income over the next few years.

Acquisitions driving growth

The REIT also announced the purchase of 12 logistics properties located in Germany and Australia. The acquisition was funded by a mix of debt and money raised through a private placement. 

Collectively, the 12 properties were purchased 1% below their appraised value, and the new units issued to raise capital were priced 22% above the REIT’s book value. As such, the private placement and acquisition will likely increase the REIT’s book value per unit. Just as importantly, the 12 properties are also expected to be accretive to distribution per unit (DPU) over the long-term.

Freehold properties

It is also great to know that the properties owned by Frasers Logistics and Industrial Trust are mostly freehold. As of 30 June 2019, 77.6% of its properties were freehold, while 13.7% had land leases that were more than 80 years long.

As such, investors can sleep easy, knowing that the REIT will not have to face additional charges to renew its land leases any time soon.

The 12 new properties that the REIT recently acquired are also freehold in nature.

The Foolish bottom line

Despite the recent run-up in its unit price and the REIT’s exposure to foreign currency risk, I feel that its favourable portfolio metrics give it an attractive risk-reward profile.

Its sponsor also has a good track record in growing and managing REITs as is the case for retail REIT Frasers Centrepoint Trust (SGX: J69U), which has seen its DPU double since its listing.

With all that in mind and barring any unforeseen circumstances, I intend to keep Frasers Logistics and Industrial Trust in my portfolio for the foreseeable future.

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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 Jeremy Chia owns units of Frasers Logistics and Industrial Trust. The Motley Fool Singapore has a recommendation on Frasers Centrepoint Trust.