FLCT proposes to acquire six Europe properties for S$548.7m, four from sponsor

THE manager of Frasers Logistics & Commercial Trust (FLCT) has proposed to acquire six freehold properties in Germany, the Netherlands and the UK for an agreed property price of S$548.7 million.

Four of the properties, three located in Germany and one in the Netherlands, will be injected into the real estate investment trust (Reit) by sponsor Frasers Property.

Meanwhile, the two UK properties - a business park known as Blythe Valley Park and a logistics and industrial property known as Connexion - will come from unrelated parties, making this the Reit's maiden third-party acquisition.

The manager expects the proposed deal to be distribution per unit (DPU) and net asset value (NAV) accretive, it said in a bourse filing on Monday.

Based on pro forma estimates, assuming the proposed acquisition was completed on Oct 1, 2020 and FLCT operated the new properties for the first half of fiscal 2021, it would boost DPU by 1.8 per cent to 3.868 Singapore cents. If the proposed acquisition was completed on March 31, 2021, NAV would rise to S$1.15 per unit from S$1.14.

The agreed property price of S$548.7 million represents a 2.5 per cent discount to the property's total appraised value of S$564.2 million by independent valuers JLL, Savills (UK) and Knight Frank.

The purchase consideration of S$469.7 million will be paid in cash to all the sellers of the properties - comprising 93.6 million euros (S$150.9 million) for the Germany and Netherlands properties and about £170.2 million (S$318.8 million) for the UK properties.

The 93.6 million euro consideration is based on 142.7 million euros in estimated net assets and liabilities of the Germany and Netherlands properties, adjusted for the effective interests that FLCT's trustee will hold. It is also based on the amount of inter-company loans owed by the four property holding companies which own the four properties which will be satisfied in full.

The manager estimates the whole deal to cost about S$501.1 million, which consists of the S$469.7 million purchase consideration, a S$4.3 million acquisition fee payable to FLCT's manager and S$27.1 million in estimated fees and expenses.

The manager plans to finance the transaction, minus the acquisition fee, through a combination of debt financing and proceeds from an equity fundraising. The S$4.3 million acquisition fee will be paid in FLCT units to the manager, who is not allowed to sell the units for one year.

The manager on Monday launched a private placement of 220 million new units in FLCT at an issue price of between S$1.363 and S$1.399 apiece to raise at least S$299.8 million. The placement is subject to an upsize option which will bring the total amount raised to a maximum of S$335.8 million.

The issue price range of between S$1.363 and S$1.399 per new unit represents a discount of about 2.4 per cent and 4.9 per cent to the volume-weighted average price of S$1.4332 per unit on Friday - the preceding market day up to the time the placement agreement was signed on Monday.

Out of the S$299.8 million in gross proceeds, about 93.7 per cent or S$281 million will be used to partially fund the proposed acquisition of the six properties. The remaining S$18.8 million will be used to pay estimated fees and expenses in connection with the proposed deal and private placement.

If the gross proceeds exceed S$299.8 million, the excess will be used towards further funding of the proposed acquisition, future acquisitions, asset enhancement works, developments or for general corporate and working capital purposes, the manager said.

The new units in the private placement will be offered to institutional and accredited investors. DBS, JPMorgan and OCBC are the joint lead managers and underwriters for the private placement.

Together, the six properties have a total lettable area of about 123,328 square metres (sq m).

The Netherlands and Germany logistics and industrial properties have a total lettable area of about 62,115 sq m. They are located within the key logistics hubs of Frankfurt and Mannheim, as well as the east of the Netherlands at the Food & Business Park Ede, which is close to key trading routes, the manager said.

Meanwhile, the UK properties have a total lettable area of about 61,213 sq m. They are situated in the West Midlands - within close proximity to Birmingham, the country's second-largest populated city after London.

Tenants include logistics service provider Hermes Germany, fitness apparel brand Gymshark, English underwear manufacturer Lounge Underwear and German chemical company BASF.

The manager said the Germany and the Netherlands properties are fully occupied with leases that have built-in consumer price indexation.

If completed, the proposed acquisition will raise the proportion of freehold assets in FLCT's portfolio to 67.9 per cent from 65.1 per cent. The weighted average lease to break (WALB) will also extend to 4.7 years from 4.4 years.

As at March 31, the six properties have a blended occupancy rate of 97.4 per cent with a WALB of 7.6 years.

The proposed deal will also strengthen the Reit's portfolio, further diversifying its tenant base and reducing tenant concentration. Gross rental income contribution from FLCT's top 10 tenants will drop to 23.4 per cent from 24 per cent after completion.

Robert Wallace, chief executive of the manager, said the new properties are complementary to FLCT's portfolio and also provide the Reit with a long-term income stream from a lineup of high-quality and diversified tenants.

"The tenants also strengthen our global customer network and provide further exposure to attractive growth sectors," he added.

The manager expects the proposed acquisition to be completed by June 2021.

FLCT's manager called for a trading halt on Monday morning. The Reit's units last closed at S$1.44 on Friday, down S$0.01 or 0.7 per cent. Meanwhile, Frasers Property shares closed at S$1.18 on Monday, up S$0.01 or 0.9 per cent.