Frasers Logistics and Commercial Trust Acquisition of Germany Logistics Assets From Sponsor- My Quick Thoughts.

Frasers Logistics and Commercial Trust (“FLCT”) announced on the morning of  March 15, 2024 that it will be acquiring 4 logistics properties in Germany from its Sponsor, Frasers Property at a 5.1% discount to professional valuation at a purchase consideration of S$189Mil. However, FLCT price dropped by close to 2% from previous day in line with the rest of the general SREIT market price upon the announcement. I was a a bit surprised at  the decline in market price despite the deal being yield accretive since it will be 100% financed by debt. Nevertheless, this reflects investors current risk appetite and sentiment towards SREITs.

Aggregate Leverage Ratio Analysis

I did a quick high level check to find out whether this deal has a severe detrimental impact on FLCT leverage ratio. The S$189Mil deal makes up around 2.8% of its current investment properties portfolio. Its aggregate ratio would have grown from 32.4% as at September 2023 to 34.3% as at end March 2024 (expected completion date). This is still way below my personal conservative red line of 40% (the MAS one is 45%). There is thus still adequate debt headroom for buffer against further economic shocks from falling properties valuation as well as further yield accretive acquisition.

Parting Thoughts

I thought that the long WALE of 6.1 years and also reputable 3PL tenants such as Schenker for the 4 properties are an arguably good buy. Saying that, interest rate risk as well as stubborn inflation that are still above the Fed target are still downside factors to watch out. In addition, management of FLCT could have been more investor friendly to work out the details of the exact yield accretive impact for more transparent disclosure in their presentation materials.