Makes first portfolio acquisition
●
FLT has announced the proposed
acquisition of seven industrial properties in Australia from sponsor for
A$169.3m or 6.4% initial NPI yield. Total acquisition cost including stamp
duty and fees is c.A$179.6m. FLT’s maiden acquisition is earlier than
we expected, and is a positive surprise. We believe the accretive acquisition
couldcatalyse FLT’s unit price, and narrow its valuation gap vs. big-cap
industrial S-REITs. The acquisition is expected to be completed in July.
● We
deem the acquisition price tag decent (c.1.2% discount to aggregate independent
valuation), and in line with recent market transactions. Although the acquisition’s
NPI yield of 6.4% is lower than its existing portfolio yield of c.7%, we
note that the properties are underpinned by long-term weighted average
lease expiry (WALE) of 9.6 years, and will increase the enlarged portfolio’s
WALE from 6.7 years to 6.9 years.
● The
seven properties comprise four completed properties (which were in the
ROFR pipeline) and three properties under development. We understand that
the properties were negotiated under a willing buyer and willing seller
basis, and not because the sponsor initiated a sale. Hence, FLT managed
to cherry-pick assets which it believes would enhance the portfolio.
● Also,
we deem that the development properties were acquired under attractive
terms. First, the acquisition cost is lower vs. acquiring a completed asset,
and the assets are near completion. Second, the developer would bear the
construction costs overrun. Third, FLT would receive coupons on initial
payment equivalent to the NPI yield during development. Fourth, the properties
are fully pre-committed.
Manager estimates c.0.9% accretion to
pro-forma DPU
●
We maintain our estimates, pending
the finalisation of the funding structure, which would be a combination
of equity and debt. Based on c.45:55 equity:debt mix, the manager estimates
c.0.9% accretion to pro-forma DPU. This could raise our FY18F DPU growth
forecast to c.4.4% yoy, which is at the higher-end for industrial S-REITs.
The cost of debt to fund the acquisition is likely to be higher vs. the
current all-in costs.
Enhancing FLT's core; remains one of our
sector's preferred picks
●
We like the quality of the acquisition
portfolio. Predominately freehold, four of the properties are located in
the state of Victoria, two in New South Wales and one in Queensland. The
seven properties are fully-leased or pre-committed, and are 2.4 years old,
on average. Leases of the new properties have annual rental step-up of
3.1%, consistent with the existing portfolio’s annual step-up. c.75% of
the properties' GRI is underpinned by MNCs and major consumer and logistics
industry players.
● The
acquisition would increase FLT's portfolio value by 9.7% to A$1.91bn and
will enlarge portfolio GLA by 10.1% to 1.35m sqm. We note that FCL has
entered into incentive reimbursement arrangements with FLT for four of
the properties.
● We
continue to like FLT for its pure exposure to thefavourable Australian
industrial market as well as strong sponsor support. Key downside risk
is a turn in the Australia market.
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