Brokers' take: Analysts recommend ARA Logos unitholders accept ESR-Reit offer

ANALYSTS are recommending that unitholders of ARA Logos Logistics Trust accept ESR-Reit’s S$0.95 per unit offer as part of a S$1.4 billion merger deal of both real estate investment trusts (Reits). 

Alternatively, unitholders who do not wish to participate could also lock-in their profits after a "stellar share price performance" in the year to date, realising a gain of 56 per cent, RHB said in a Monday report. 

It has downgraded ARA Logos to “take profit” from “buy” as its target price of S$0.95 has been attained. Thus, investors should look to accumulate at lower levels. 

ARA Logos reached RHB’s target price of S$0.95 on Sep 2. As at 4.39 pm on Monday, the counter was trading 5.4 per cent or S$0.05 lower at S$0.885 after resuming trading, following a halt on Friday.

Although the move was anticipated, the timing of the announcement came as a surprise to RHB. That being said, the research team noted the fair valuations considering the exciting prospects of the proposed merger. 

"Despite concerns over the attractiveness of pricing, we believe the deal offers exciting mid- to long-term growth potential with a visible US$2 billion pipeline of new economy assets in Asia-Pacific, heralding the next phase of growth," RHB said.

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The move will also help accelerate the divesting of ARA Logos' older and shorter-land tenure warehouses in Singapore and allow redeployment to modern warehouses, RHB’s research team said.

ARA Logos will also benefit from enhanced scale, increased diversification and lower cost of debts through the merger with ESR-Reit, said UOB Kay Hian (UOBKH) in a separate report on Monday. 

A bulk of the accretion will come from lower financing cost and the payment of upfront land premium, said CGS-CIMB in a report last Friday (Oct 15). 

UOBKH and CGS-CIMB's target price for ARA Logos stands at S$1.07 and S$0.961, implying an upside of 20 per cent and 8.6 per cent respectively. CGS-CIMB has an unchanged "add" call on the counter.

The merger of ESR-Reit and ARA Logos will take place by way of a trust scheme of arrangement. ARA Logos unitholders will receive a scheme consideration of S$0.95 per ARA Logos unit - comprising S$0.095 in cash and 1.6765 new ESR-Reit units, to be issued at S$0.51 apiece.

If completed, the merged entity will become the 9th largest Reit by free float in Singapore and 13th largest S-Reit by assets under management. It could also see a re-rating, CGS-CIMB said. 

READ MORE:

• ESR-Reit, Ara Logos propose merger with pricing favouring ESR-Reit unitholders
• Hot stocks: ESR-Reit climbs 4.3%, Ara Logos down 3.7% on proposed merger