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FLT and FCOT propose S$1.58b merger, eye 50% stake in UK business park

If the merger goes through, the enlarged Reit's portfolio will comprise around 2.6 million square metres of space with some 300 tenants in 98 properties spread across five countries.

A MERGER costing S$1.58 billion between Frasers Logistics & Industrial Trust (FLT) and Frasers Commercial Trust (FCOT) has been proposed by the managers of both real estate investment trusts (Reits).

The proposed merger will be by way of a trust scheme of arrangement, which will see FLT acquiring all units of FCOT for about S$1.54 billion, the managers said on Monday in a bourse filing.

FLT will pay the scheme consideration via a combination of cash and the issuance of new FLT units to FCOT unitholders.

For each FCOT unit they hold, FCOT unitholders will receive S$0.151 in cash and 1.233 new FLT units at an issue price of S$1.24 apiece.

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This means FCOT unitholders will be paid a scheme consideration of S$1.68 for each FCOT unit held, which implies a gross exchange ratio of 1.355 times.

This represents a premium of around 0.6 per cent, 3.5 per cent and 8.2 per cent to FCOT’s last traded price on Nov 27, one-month volume-weighted average price (VWAP) and 12-month VWAP, respectively.

The total cost of the proposed merger will be around S$1.58 billion. This comprises the S$1.54 billion scheme consideration, as well as a S$11.2 million acquisition fee and S$35 million in professional and other fees.

If the proposed merger is completed, sponsor Frasers Property (FPL) and its related groups are expected to own a 21.9 per cent stake of the enlarged Reit. Other FCOT unitholders are expected to hold 24.6 per cent, while other FLT unitholders are expected to hold 53.5 per cent.

Currently, FPL holds around 19.6 per cent interest in FLT and 25.9 per cent interest in FCOT.

The enlarged Reit will hold around S$5.7 billion in assets across the Asia-Pacific, Europe and the UK – and is expected to be one of the top 10 S-Reits by market capitalisation. It will also have greater index representation on the FTSE EPRA/NAREIT Index, the managers said. 

The portfolio will consist of around 2.6 million square metres of space with some 300 tenants in 98 properties spread across five countries.

FLT’s international portfolio comprises 92 properties - 62 in Australia, 25 in Germany and five in the Netherlands worth - worth about A$3.6 billion (S$3.3 billion).

Meanwhile, FCOT’s international portfolio consists of six properties across Singapore, Australia and the UK with an appraised value of around S$2.2 billion as at Sept 30.

This includes China Square Central and Alexandra Technopark in Singapore; 357 Collins Street, Caroline Chisholm Centre, and a 50 per cent indirect interest in Central Park in Australia; and a 50 per cent indirect interest in Farnborough Business Park in the UK.

If the proposed merger is completed, the enlarged Reit’s exposure to any single asset will be no more than 12 per cent by value.

No single tenant will contribute more than 6 per cent of the pro forma gross rental income (GRI) of the enlarged Reit.

In addition, the enlarged Reit will have a weighted average lease expiry (WALE) of 5.8 years, based on the GRI as at Sept 30.

The enlarged Reit will be managed by FLT manager Frasers Logistics & Industrial Asset Management. 

The managers added that the proposed merger and asset acquisition is DPU (distribution per unit) accretive on a pro forma basis for both FLT and FCOT unitholders by 2.2 per cent and 4.2 per cent respectively.

Chief executive of FLT's manager Robert Wallace called the merger a win-win transaction for both FLT and FCOT unitholders, delivering DPU accretion and greater growth prospects.

It will also enhance financial capacity and flexibility to pursue acquisitions and a right of first refusal pipeline in excess of S$5 billion.

"We will be in an even stronger position to pursue growth and continue to deliver long-term value to our unitholders," he added.

Chief executive of FCOT's manager Jack Lam added: "With the combined portfolio, we will be able to unlock synergies and explore new opportunities in the logistics, industrial and commercial sectors."

If the proposed merger goes through, FCOT will be delisted from the Singapore Exchange (SGX), subject to approval. Both Reits are listed on SGX’s main board.

The trust scheme requires the approval of FCOT unitholders holding more than 75 per cent of the total votes held by FCOT unitholders present at an extraordinary general meeting in person or by proxy.

It also requires approval from the majority of FCOT unitholders representing at least three-fourths in value of FCOT units held by FCOT unitholders present and voting at the trust scheme meeting in person or by proxy.

A trust scheme court order also needs to be obtained.

In connection with the merger, the managers of FLT and FCOT are also proposing a £90.1 million (S$157.7 million) acquisition of the other 50 per cent interest in Farnborough Business Park.

Located in the Thames Valley, the 46.5 hectare freehold business park is connected directly to key motorways and a train service to Waterloo Station in London.

The business park has a net lettable area of about 50,882 square metres, a committed occupancy rate of 99.1 per cent - inclusive of a new lease concluded in October 2019, and WALE of 6.8 years as at Sept 30.

The managers added that the merger is not conditional upon the approval of the proposed Farnborough Business Park asset acquisition. However, the asset acquisition is conditional upon the merger being completed.

FLT units resumed trading on Monday afternoon, rising 3.2 per cent or four Singapore cents to S$1.28 as at 2.28pm. FCOT units likewise resumed trading in the afternoon, rising as high as 3.3 per cent or 5.5 cents to S$1.725 as at 2.25pm. Both Reits had called for trading halts on Nov 28.