BT Explains: What you need to know about the ALog Trust-ESR-Reit merger

UNITHOLDERS of ESR-Reit and Ara Logos Logistics Trust (ALog Trust) will soon need to make a decision on the merger of the 2 real estate investment trusts (Reits).

The proposed S$1.4 billion merger will be effected by way of a trust scheme of arrangement and will see ESR-Reit acquiring all of ALog Trust's units in exchange for a combination of cash and new units.

ALog Trust unitholders will receive a scheme consideration of S$0.95 per ALog Trust unit consisting of S$0.095 in cash and 1.6765 new ESR-Reit units, to be issued at S$0.51 apiece.

The new entity - which will be renamed ESR-Logos Reit - will have 87 properties spread across Singapore and Australia, as well as 41 properties owned via investment funds in Australia.

While the proposed merger has been said to be accretive to the distributions per unit (DPU) of both Reits, it has also been said to be dilutive to the merged entity's net asset value (NAV). Here are some other things to bear in mind:

What the merger means for ESR-Reit unitholders

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The pricing of the deal has been said to be more favourable for ESR-Reit unitholders. The S$0.51 issue price is close to the counter's 52-week high of S$0.52 recorded in September, valuing ESR-Reit at a 9.7 per cent premium from its closing price of S$0.465 before the merger announcement.

ESR-Reit's unitholders will also stand to benefit from the acquisition of a portfolio on which the market has placed a premium. Nearly two-thirds of the merged portfolio will be in what the Reits' managers dub "in-demand new economy real estate".

This refers to logistics and high-spec industrial space focused on e-commerce, high value-added manufacturing such as precision engineering, data centres, and cold storage facilities.

ESR-Logos Reit will also have a higher portfolio occupancy rate than ESR-Reit, greater exposure to freehold properties and a longer weighted average lease expiry. And it will have lower exposure to business parks, where the work-from-home trend is creating uncertainty.

What the merger means for ALog Trust unitholders

ALog Trust is being valued at a 1.6 per cent premium to its closing price before the announcement, which is lower than the premium accorded to ESR-Reit. A merger will also mean that ALog Trust unitholders will no longer own a Reit with a pure-play logistics status.

But RHB, in a research note on Oct 18, 2021, has also noted that the move will likely accelerate the divesting of ALog Trust's older and shorter land tenure warehouses in Singapore and allow redeployment to modern warehouses.

What is next for unitholders?

ESR-Reit's extraordinary general meeting (EGM) to approve the merger and the proposed issue of new units will take place on Jan 27, at 11 am. Unitholders will need to lodge their proxy forms by 11 am on Jan 24.

For the proposed deal to go through, ESR-Reit unitholders representing more than half of the votes will need to give the green light.

For ALog Trust, there will first be an EGM at 3 pm on Jan 27 to amend the trust deed. If the resolution to amend the trust deed is carried, a scheme meeting will be held to approve the scheme of arrangement.

At ALog Trust's EGM, 75 per cent of voting unitholders will need to give their approval to amend the trust deed. Next, at the scheme meeting, unitholders in favour must number more than 50 per cent of the total number of unitholders voting at the meeting. These unitholders must also represent at least 75 per cent in value of the total votes cast.

The proxy form for the ALog Trust EGM will need to be lodged by 3 pm on Jan 25, while the proxy form for the scheme meeting needs to be lodged by 3.30 pm on the same day.

The Securities Investors Association (Singapore) or Sias will also hold separate virtual dialogue sessions for ESR-Reit and ALog Trust unitholders on Jan 13 and Jan 14, respectively.

What should you do as a unitholder?

For unitholders of ESR-Reit, the decision should be fairly straightforward as the deal is mostly positive for them.

The unitholders of ALog Trust, however, will need to decide whether or not they buy into management's idea of a bigger Reit being a better one.

READ MORE:

• ESR-Reit, Ara Logos propose merger with pricing favouring ESR-Reit unitholders
• ARA Logos minorities may support merger with ESR-Reit, but not because it's a good deal
• Disgruntled ARA Logos unitholders should vote
• Should Ivanhoe Cambridge be allowed to vote on ARA Logos' merger with ESR-Reit?
• Ara Logos-ESR-Reit merger NAV dilutive at first but may mitigate decline over time: ESR
• ESR Cayman shareholders approve acquisition of ARA Asset Management, paving way for ESR-Reit, ARA Logos merger
• Analysts recommend ARA Logos unitholders accept ESR-Reit offer