SINGAPORE - Frasers Logistics & Industrial Trust (FLT) is planning to acquire 12 freehold logistics properties - nine in Germany and three in Australia - from its sponsor Frasers Property for A$644.7 million ($612.5 million).
FLT, a real estate investment trust (Reit), entered into sale and purchase agreements with subsidiaries of Frasers Property for the proposed acquisition, FLT's manager said on Wednesday (July 3) morning.
It will purchase the three Australian properties, as well as the equity interests in 10 companies that hold interests in the nine German properties.
The manager is targeting to complete the acquisition by the end of August this year, subject to, among other things, approval from unitholders of FLT.
For illustrative purposes only, distribution per unit (DPU) is expected to increase to around 3.58 cents post-acquisition and after the completion of the Reit's three earlier-announced divestments in Australia, up from the 3.54 cents as at March 31 for H1 2019.
In May, FLT announced it will sell two entire properties in Victoria, Australia. It also said in June that it is divesting a 50 per cent stake in a Queensland property.
About A$157 million in net proceeds from these three divestments would be used to reduce FLT's borrowings, the Reit manager's chief financial officer Susanna Cher said during a media briefing on Wednesday.
In the proposed acquisition, the agreed property price of A$644.7 million comprises the 320.3 million euro (A$519.2 million or $493.3 million) purchase price for the nine German properties, and A$125.5 million for the three Australian properties.
This works out to around A$507.2 million in aggregate consideration, taking into account the effective interests that FLT will be acquiring in the German properties' holding companies, adjusted for the net assets and liabilities of these holding companies as well as the amount of inter-company loans to be assigned to FLT at the deal's close.
FLT will take on 73.7 million euros in existing debt from the holding companies of the German assets under the share purchase. There is no existing debt for the Australian properties as they will be acquired as asset purchases.
The 12 properties have a total gross lettable area (GLA) of about 297,000 square metres (sq m) and are 100 per cent freehold, with 100 per cent occupancy and a long weighted average lease expiry (WALE) of 8.6 years as at March 31.
They are located within major logistics hubs - in the states of Berlin, Bavaria, Baden-Wurttemberg, Hesse and North Rhine-Westphalia in Germany; and in Brisbane, Sydney and Melbourne in Australia.
Tenants include multinational corporations with investment-grade ratings and public-listed corporations such as Hermes, Bosch, Kentner, FDM and Edeka.
All of the leases have consumer price index-linked indexation or fixed escalations.
The proposed acquisition will strengthen FLT through geographical diversification, higher proportion of freehold properties, reduced tenant concentration and a longer WALE of 6.7 years, up from 6.5 years as at March 31, said Robert Wallace, chief executive officer of the Reit manager.
The manager will finance the proposed acquisition with a mix of equity and borrowings, at a proportion to be decided at a later stage.
FLT's total debt is expected to increase by some A$227.3 million or 20.7 per cent to A$1.32 billion after this proposed acquisition and the three earlier-announced Australia divestments, from A$1.1 billion as at March 31.
Gearing will increase to 36.1 per cent after the acquisition and divestments, up from 35.1 per cent as at March 31. Excluding the use of net proceeds from the divestments to reduce borrowings, gearing would be 38.5 per cent after this acquisition.
Regarding the Monetary Authority of Singapore's proposal to raise the 45 per cent leverage limit for Reits, Mr Wallace said on Wednesday that such a move is unlikely to affect FLT. "Our comfort zone for FLT's gearing is in the 30s (per cent), so we probably will not venture beyond that even if the limit is increased to 50 per cent," he told The Business Times.
Its sponsor Frasers Property said in a separate bourse filing on Wednesday that its divestment of the 12 properties is in line with its strategy to recycle capital.
"This enables the group to both optimise capital productivity and support the growth of its Reits," Frasers Property said.
The divestment is not expected to have any material effect on Frasers Property's net tangible assets per share and earnings per share for the current financial year.
Frasers Property is a controlling unitholder of FLT, holding about 21.2 per cent of the Reit's units as at July 3, and also wholly owns the Reit manager.
As at 2.01pm on Wednesday, FLT units were trading flat at $1.22, while shares of Frasers Property were trading up one cent at $1.87.