SINGAPORE (July 5): Frasers Logistics & Industrial Trust (FLT) is proposing to acquire 12 freehold properties – nine in Germany and three in Australia – from its sponsor for A$644.7 million ($612.5 million) as part of its capital recycling strategy.

Nine of the 12 properties acquired are located in Germany, in the states of Berlin, Bavaria, Baden-Wurttemberg, Hesse and North Rhine-Westphalia. The three in Australia are located in Melbourne, Sydney and Brisbane. The purchase will be funded by a mix of equity and debt at a ratio to be decided.

See: Frasers Logistics & Industrial Trust to acquire stakes in 12 properties in Germany, Australia from sponsor for $482 mil

Over the past three months, FLT divested stakes in three assets: two properties in Melbourne and a 50% interest in another property in Parkinson, Queensland, as part of its recycling strategy.

“We have gone through a little bit of an asset recycling programme,” Robert Wallace, CEO of Frasers Logistics & Industrial Asset Management, told The Edge Singapore in a recent interview. “From our viewpoint, we have been able to use those funds released through the sale to apply them to these acquisitions,” he adds.

With the acquisition, FLT’s assets under management (AUM) will rise from A$2.9 billion to A$3.5 billion.

CGS-CIMB Research Lock Mun Yee says the quality assets will improve FLT’s portfolio metrics due to its geographical diversification, built-in rental escalations, rentpaying occupancy of 100%, higher proportion of freehold properties, reduced tenant concentration and longer WALE of 6.7 years.

Based on 1H19 pro-forma financials disclosed by the manager, the proposed acquisition coupled with the prior divestments in FY19 will result in a 1.1% increase in DPU to 3.58 cents excluding the impact of a one-off capital gains tax on the FY19 divestments. Including this impact, the DPU would have been 3.47 cents.

And assuming a 60:40 debt-equity funding ratio, NAV would in increase by 3.3% while gearing will increase from 35.1% to 36.1%.

However, Lock says it could take a while for the acquisition to be accretive.

Although she has decreased FY19F DPU by 5.5% from 7.05 cents to 6.66 cents, FY20F DPU has been raised by 1.5% from 7.07 cents to 7.18 cents.

CGS-CIMB is maintaining its “hold” call on FLT with a higher target price of $1.25, from $1.21 previously.

Units in FLT closed 3 cents higher at $1.27 on Friday.