SINGAPORE (April 18): DBS says Frasers Centrepoint’s acquisition of Geneba Properties N.V. will help the property group gain a foothold in the logistics and industrial market in Europe.
Geneba is a European commercial real estate investment company headquartered in Amsterdam and is listed on the NPEX, the SME Stock exchange in the Netherlands for small and medium-sized companies.
The company manages a predominantly logistics and industrial portfolio located in Germany and Netherlands. The company was established on 11 July 2013 and commenced business on 27 March 2014.
(See also: Frasers Centrepoint to acquire European real estate company for $471.6 mil)
According to a Tuesday report, lead analyst Derek Tan says long weighted average lease expiry (WALE) industrial and logistics portfolio with quality tenant base improves cash flow profile for FCL.
As of Dec 31 2016, Geneba has assembled a property portfolio of mainly logistics and industrial buildings worth EUR 493 million ($734 million).
These properties are leased to large and medium-sized industrial companies under long leases and are mainly mission critical to its tenants.
As of Feb 28, 2017, the portfolio had an average occupancy rate of 98.0% and a WALE of 9.5 years. The occupancy rate has remained fairly stable over the years.
Given FCL’s multi-geographical footprint and established track record in development and management of industrial properties from Australia, Tan says the group will be able to cross-fertilise its capabilities across newly minted markets in Thailand and now, Europe.
“When successful, we believe that FCL will be able to establish a ‘grow with customers’ strategy that could result in increased stickiness with tenants in the medium term,” says Tan.
FCL will first acquire 86.56% of Geneba for cash consideration of EUR 3.67 per depositary receipt or an aggregate amount of EUR 315.9 million ($471.6 million) from Catalyst RE Coöperatief U.A., a private equity firm.
Upon attaining the relevant approvals, FCL will then make an all-cash offer for the remaining 13.44% free-float at an equivalent offer price per depositary receipt.
FCL expects to complete the transaction for the 86.56% stake by end of June 2017.
FCL’s purchase price implies a 35% premium to NAV of EUR 233.1 million, or 82% premium to the market cap of EUR 173.3 million. A back of the envelope calculation implies an acquisition cap rate of 6.4%, which is higher than recent market transactions in the region of 5.5%.
While premiums are high at first look, Tan believes that it accounts for income growth and upside to capital values from planned asset enhancement initiatives (AEI) of certain assets and potential capital values given expectations of further cap rate compression against the backdrop of robust market transaction volumes.
It is intended that the group will fund the purchase of Geneba properties with internal resources but Tan believes that part of the funding could come from potential asset recycling of stable properties in Singapore/Australia to their listed REITs.
Units of FCL are up 4 cents at $1.80. DBS has a “buy” on FCL with $2.00 target price.
