Frasers Logistics and Industrial Trust (SGX: BUOU) recently announced the proposed acquisition of nine properties in Germany and three properties in Australia. The trust recently raised S$258.1 million in funds through a private offering that was 3.2 times subscribed. Here’s my take on why I believe the latest acquisition will benefit the industrial REIT (real estate investment trust) over the long term.
A REIT’s geographical portfolio diversification is sometimes overlooked. However, having a geographically diverse portfolio spreads out the currency risk and reliance on a single economy.
This is perhaps more important for Frasers Logistics and Industrial Trust, which has seen its distribution per unit (DPU) suffer from the depreciation of the Australian dollar in the past. In the most recent quarter, DPU in Australian dollar terms increased by 3.4%. However, due to the significant depreciation of the Australian dollar against the Singapore dollar over the last year, DPU in Singapore dollars dropped by 3.9%.
The acquisition of the 12 properties will decrease the REIT’s reliance on its Australian portfolio and increase its exposure in Europe.
Source: Frasers Logistics and Industrial Acquisition presentation
Decent purchase price
The purchase consideration is a 1.0% discount to the appraised value of the new properties. Moreover, the 12 properties are 100% occupied and will provide DPU-accretion based on pro forma calculations.
The leases also have built-in consumer-price-index-linked or fixed annual escalations, which should provide visible rental income growth over the years.
Private placement of units above book value
Lastly, the trust has done well to raise funds even in current market conditions. Frasers Logistics and Industrial Trust unit prices have climbed 17.4% year to date partly thanks to the Fed’s more dovish stance on interest rates.
Despite the recent run-up in prices and new units at just 1.2% below the adjusted volume-weighted average price, the private placement was more than three times subscribed. This clearly demonstrates that the REIT is backed by supportive investors who are willing to support it with timely capital injections.
The issue price was also 22% above the REIT’s book value and will lead to an increase in the net asset value per unit of the REIT.
The Foolish bottom line
Overall, the acquisition of the 12 properties and the private placement of units look to be good news for existing unitholders.
However, investors should note that the use of debt to partially fund the acquisitions brings it closer to the 45% gearing regulatory ceiling. The acquisition is expected to raise the REIT’s gearing to 38.5% from 34.6%. As such, investors may have to expect that the REIT now has limited capacity to make such acquisitions in the future.
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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 Jeremy Chia owns units of Frasers Logistics and Industrial Trust.