ESR-Reit, ALog Trust investors say 'aye' to union

Singapore

THE managers of ESR-Reit and ARA Logos Logistics Trust (ALog Trust) must be heaving huge sighs of relief. After a series of speed bumps, the managers of the 2 real estate investment trusts (Reits) have finally received approval from their respective unitholders to go ahead with the merger to form ESR-Logos Reit (E-Log Reit).

At its extraordinary general meeting (EGM) at 10am on Monday (Mar 21), unitholders of ESR-Reit voted overwhelmingly in favour of the merger. Some 98.6 per cent of unitholders voted in favour of the merger, and 98.4 per cent agreed to the issuance of new ESR-Reit units to ALog Trust unitholders at an issue price of S$0.4924 apiece as part of the consideration of the merger. Valid votes were cast by unitholders holding a total of 1.22 billion ESR-Reit units.

Adrian Chui, chief executive officer of the ESR-Reit manager, said: "...This successful merger addresses the issues of the overlapping investment mandates and conflicts of interest arising from a common sponsor, thereby allowing our sponsor, ESR Group, to concentrate its efforts and resources on our single enlarged platform."

At a separate EGM for ALog Trust unitholders at 3pm, 94.8 per cent of the total number of votes received from Alog Trust unitholders were cast in favour of the extraordinary resolution to amend the trust deed to facilitate the implementation of the scheme. Votes were cast by unitholders holding a total of 733.5 million units.

At a scheme meeting following this EGM, 62.9 per cent of the number of ALog Trust unitholders present and voting by proxy voted to approve the scheme. They represented 92.5 per cent in value of the ALog Trust units held by the unitholders present and voting by proxy at the scheme meeting.

This is understood to have included the approval of Ivanhoe Cambridge Asia, which held nearly 126.7 million units in ALog Trust, totalling more than 8.7 per cent of its total outstanding units. Ivanhoe Cambridge, ALog Trust's largest stakeholder, had provided an irrevocable undertaking to support the deal.

The ALog Trust manager, the parties acting in concert with the ESR-Reit manager in connection with the merger, and the directors of the ALog Trust manager who are not considered independent for the purposes of the scheme, abstained from voting on the resolution to approve the scheme.

Still, even without Ivanhoe Cambridge's favourable vote, ALog Trust would have passed the requirement for the support of unitholders representing at least 75 per cent in value of the total votes cast for the scheme to be approved.

A total of 811 unitholders representing 534.4 million ALog Trust units were present or voted by proxy at the scheme meeting. This is just over a third of ALog Trust's 1.45 billion outstanding units, according to Bloomberg data.

"We believe that ALog Trust unitholders' decision to support the merger is a testament to the strong strategic merits for the formation of the larger E-Log Reit," said Karen Lee, chief executive of Alog Trust's manager. "Moving forward, Adrian and I will work hand in hand to accomplish the milestones we have communicated to unitholders as we pursue long-term sustainable and accretive growth for E-Log Reit," she added.

Chui will be the chief executive of the manager of E-Log Reit following the merger, while Lee will take on the role of deputy chief executive of the manager of the enlarged entity.

The Reits had in October 2021 mooted the S$1.4 billion merger. The enlarged entity will have S$5.4 billion in total assets under management and rank among the 10 largest Singapore-listed real estate investment trusts (S-Reits) based on its theoretical combined market capitalisation.

The proposed merger had been contingent on the merger between the 2 Reits' sponsors - ESR Cayman and ARA Asset Management. This "mothership merger" was completed in January 2022, paving the way for the union between ESR-Reit and ALog Trust.

But the proposed deal had run the risk of being derailed following negative reports by 2 proxy advisory firms.

This prodded the Reit managers to improve the merger offer - and postpone the planned dates for their EGMs to vote on the proposed deal by a couple of months. The EGMs to seek unitholders' approval for the Reits' merger had been originally planned to be held on Jan 27.

Proxy advisory firms Institutional Shareholder Services (ISS) and Glass Lewis around mid-January released reports recommending that unitholders of ALog Trust vote against the merger. The proxy advisers objected to the proposed merger on grounds that the process had been "questionable" and that the offer price was unfair to ALog Trust unitholders.

In response, the Reit managers postponed the EGMs and revised the terms for the scheme consideration for the proposed merger to sweeten the deal for ALog Trust unitholders. The scheme consideration was raised to S$0.097 in cash and 1.7729 in ESR-Reit units for every ALog unit, from S$0.095 in cash and 1.6765 in ESR-Reit units previously.

Based on the 1-month volume-weighted average price of S$0.4716 per ESR-Reit unit up to Oct 14, 2021 - being the last trading day prior to the announcement of the proposed merger - the consideration per ALog Trust unit would be S$0.933. This is 5.3 per cent higher than the value of S$0.886 previously.

Earlier this month, both proxy advisers had issued fresh reports recommending unitholders to vote in favour of the merger based on the revised terms of the offer.

Unitholders, too, appear to have been won over by the "compelling" underlying strategic rationale behind the merger.

With the 2 Reits now sharing a common sponsor, the merger was seen as crucial to avoid conflict of interest.

The enlarged Reit is also expected to benefit from having greater scale, improved tenant diversification and greater access to capital at a more competitive cost.

"Through this enlarged platform, we are now in a better position to pursue growth opportunities, create value and deliver long-term sustainable returns for our combined set of unitholders," Chui said.

Subject to the necessary approvals, the merger is expected to become effective by the end of April 2022. Following this, ALog Trust will be delisted from the Singapore Exchange around May 2022.