FLT is a Reit that holds 61 industrial and logistic properties in Australia worth about A$1.93 billion, concentrated in major cities of Sydney, Melbourne and Brisbane.
It is part of the Frasers Property Group that also owns other Reits in retail, office and hospitality sector such as Frasers Centrepoint Trust and Frasers Commercial Trust and Frasers Hospitality Trust.
Predominantly Freehold Prime Properties
93% of the twenty one properties to be acquired are freehold. This means that investors need not worry about land use rights and properties value decay towards the end of the land lease.
The new properties are also of significant size compared to existing properties in terms of Gross Lettable Area (GLA) and value.
The Weighted Average Lease Expiry (WALE) is also comfortably long - longer than existing portfolio's WALE, at 8 years.
All properties are located in major logistic clusters of Germany and Netherlands. According to the acquisition presentation slides, Germany and Netherlands were ranked #1 and #4 logistics hub globally by World Bank 2016 LPI Global Ranking.
Diversification of Portfolio
Post acquisition, the Europe properties will represent a significant portion of the overall portfolio value - 33%, reducing Australia's portion to 67%.
Proportion of freehold assets will also increase to 71% of total portfolio.
Top ten tenants would not take up 35.2% of total Gross Rental Income (GRI), reducing concentration risk. Worth noting that the top tenants in Europe assets are big enough to be among the top ten tenants overall - further illustrating that this is a big acquisition.
I did a quick cursory search on the top tenants:
- Mainfreight is a major supply chain logistic player listed on the New Zealand stock exchange with revenue of NZ$ 2.3b in 2017
- Bakker Logistics is a Dutch company specialised in transportation and warehousing services of food products across Europe
- DSV Solution is a Danish transport and logistic company with offices in 80 countries and 45,000 employees.
- Costellium is a producer of high value-add aluminium products for aerospace, automotive and packaging markets, with 24 manufacturing sites in America, Europe and China
Total cost of Acquisition
For such a sizeable acquisition, the total cost wont come cheap. It is estimated that the total transaction will cost $529 million.
Method of Funding
Management will fund the acquisition via one/or more of the 3 sources:
- private placement to institutional and other investors
- non-renounceable preferential offering to existing unitholders
It Is Distribution Per Unit (DPU) Accretive
The large portfolio value and transaction cost not withstanding, Management guided that the deal is DPU accretive, a good deal for existing unitholders. The 1Q 2018 Pro Forma distribution would have been 1.83 cts, a 1.7% increase if the acquisition with similar financing were done earlier.
However, do note that gearing would increase considerably as well to 36.8%.
Clearly, FLT is expanding into Europe market with a bang, via acquisition of 21 properties worth more than half of their existing portfolio value in one fell swoop. The management must be very confident in the fundamentals of Europe's logistic and industrial sector.
While I am positive on the good quality freehold assets with long WALE, strong tenants and high occupancy rate, I am negative on possibly large debt that FLT will take on. And the seemingly small percentage increase in DPU post acquisition.
The circular should provide greater details on the acquisition, particularly the debts and equity fund raising which I will be looking out for.
Shareholders can expect deal to be completed by June after EGM.
*All diagrams are taken from FLT's Acquisition Presentation dated 20 Apr 2018.
*This is not a recommendation to buy or sell.