SINGAPORE (Apr 23): CIMB says Frasers Logistics & Industrial Trust (FLT) planned acquisition of German and Dutch properties "tick all the right boxes".
FLT has proposed the acquisition of 21 industrial properties in Germany and the Netherlands for $972.8 million with an entry NPI yield of 5.5%.
The portfolio is predominantly freehold, 100% occupied, has quality tenancy covenants and enjoys long WALE of eight years.
Also, the bulk of leases have CPI-linked indexation, says CIMB. "Effectively, the leases have average annual step-up of 1% p.a. vs. Australian leases which have average 3% increase. Also, European leases have longer tenures and lower incentives. Because of where spot rents are, renewals could positively revert," says CIMB analyst Yeo Zhi Bin in a Friday report.
FLT's manager expects 1.7% DPU accretion. "We note that the 1.7% accretion also includes potential AEI income from three properties," says Yeo.
Post-acquisition, AUM is expected to grow to A$2.9 billion ($2.9 billion) from A$1.9 billion; with Australia and Europe accounting for 67% and 33% respectively.
Yeo says the two markets benefit from GDP growth, rise of e-commerce and are key logistics hubs. FLT can also leverage its sponsor’s European team to manage the assets.
The manager is assuming that 493.6 million new units would be issued at $1 each while the balance of transaction cost would be funded by debt. Post-acquisition, gearing is expected to increase from 30.9% to 36.8%.
"We raise our FY18-20 DPU by 0.6-1.1% as we factor in the acquisition and potential equity fund raising," says Yeo, "maintain 'Add' with an unchanged DDM-based target price."
As at 12.42pm, units in FLT are trading at $1.06 giving it an FY18 yield of 6.6%.
