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Frasers Logistics & Industrial Trust Displays Active Capital Management

Frasers Logistics and Industrial Trust (SGX: BUOU), or FLT, has a portfolio of 82 logistics and industrial properties worth approximately 3 billion Australian dollars. These properties are concentrated within major logistics and industrial markets in Australia, Germany, and the Netherlands. FLT’s portfolio consists predominantly of freehold and long leasehold land tenure assets, and FLT’s sponsor is Frasers Property Limited (SGX: TQ5).

Active management of a REIT should consist of periodically trimming underperforming assets in favour of newer, better-performing assets. A good REIT manager would do so in order to maximise value for unitholders, as holding on to a poorly-performing asset is tantamount to allowing unitholders’ money to languish. FLT has engaged in several transactions in recent months to divest non-core properties as well as to reduce its reliance on a single tenant for rental income.

Here are the details of these transactions as well as a summary of the key benefits for unitholders.

The divestments

Below is a table showing a summary of the recent divestments FLT has made.

Note that over the last three months, FLT divested a total of three properties (two fully divested, one divested 50% interest). The total consideration for all properties came to around AU$171.9 million.

Benefits to unitholders

Investors should note that there is a trend of these properties being sold at a premium to book value, which is usually in the double-digit range, and in two cases, also at a decent premium to the original purchase price. These are, in effect, good examples of capital recycling as the manager is selling off properties at a premium to book, garnering a good gain for unitholders, while keeping the cash as dry powder for potential acquisitions of properties with more superior characteristics.

A variety of reasons for divestment

There are a variety of reasons given for the divestments. For South Park Drive, it was because the property was an older, non-core facility. For the Sandstone Place divestment, the reason was to reduce reliance on Coles being FLT’s single largest tenant at 7% of gross rental income. The divestment would enable FLT to partner with DWS (the purchaser), which has a track record in Australia’s industrial sector and has a strong familiarity with cold storage logistics assets.

There are other possible reasons, too, that weren’t stated, such as the possibility that a buyer was offering a very attractive price for a specific property, so the manager jumped on the opportunity to sell in order to redeploy the proceeds. The manager could also have identified certain properties for purchase and is actively raising cash from divestments to prepare to acquire them.

The Foolish bottom line

It appears that FLT’s manager is proactive in divesting non-core assets and is adept at selling them at a good premium to value. The Sandstone Place divestment also demonstrates the manager’s savviness in terms of creating a partnership with a proven leader in logistics assets in order to benefit the REIT in future years, while also achieving the goal of reducing reliance on Coles as its major tenant.

Such activities will add value to the REIT over the long term as it continually sheds older assets in favour of newer, better ones, and investors should continue to keep an eye on FLT for these reasons.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Royston Yang owns shares in Frasers Logistics And Industrial Trust.