• Est. acquisition cap rate of ~5.8%
• Positive portfolio metrics
• Favourable demand and supply dynamics

Proposed Maiden Acquisitions in Germany and the Netherlands

Frasers Logistics & Industrial Trust (FLT) announced that it has proposed to acquire from its sponsor Frasers Property Limited (FPL) all the shares in a company which holds interests in 21 prime industrial properties in Germany (17) and the Netherlands (4). Upon completion, this would mark FLT’s maiden entry into the European industrial market.

We note that Germany and the Netherlands are ranked as the number one and number four logistics hubs globally, respectively, according to the World Bank 2016 Logistics Performance Index Global Ranking. The agreed purchase price is ~EUR596.8m (~S$972.8m), which we estimate works out to an acquisition cap rate of ~5.8%. The purchase consideration is EUR316.2m (~S$515.4m) after adjusting for the net assets and liabilities of the target company (including debt facilities of EUR262.7m to be assumed by FLT) and post assignment of an inter-company loan from FPL to FLT.

Total transaction costs are estimated at EUR325m (~S$529.8m). This is expected to be funded largely by an equity fund raising exercise (private placement and a non-renounceable preferential offering). On a pro forma basis, this proposed transaction would result in a slight DPU accretion of 1.7% for 1QFY18, while FLT’s gearing ratio would move up to 36.8% from 30.9%.

Strong Portfolio Metrics for Target Acquisitions

We are largely positive on this deal as it would not only diversify FLT’s income streams, but also lengthen its WALE to 7.1 years from 6.8 years and increase the proportion of its freehold assets to 71% from 60%, while being DPU accretive to unitholders. The properties are also 100% occupied and key tenants include multinational corporations with investment grade ratings such as BMW Group, Volkswagen and Mainfreight. 89% of the leases have CPI-linked indexation or fixed rental escalations.

Demand and supply dynamics also look favourable in Germany and the Netherlands, underpinned by robust underlying demand and limited supply for warehouse space. Pending approvals from an upcoming EGM and completion of this proposed acquisition which is expected by Jun, we have not incorporated this transaction in our model. Our fair value estimate thus remains unchanged at S$1.25.

Source: OCBC Research - 23 Apr 2018