Hot stocks: ESR-Reit climbs 4.3%, Ara Logos down 3.7% on proposed merger

THE proposed merger of ESR-Reit J91U and Ara Logos Logistics Trust K2LU has garnered different reactions from the market, with ESR-Reit climbing 4.3 per cent during the early morning trade on Monday (Oct 18), while Ara Logos drops 3.7 per cent.

Both counters had resumed trading after the managers of both real estate investment trusts (Reits) called for separate trading halts on Friday (Oct 15) morning.

This comes amid expectations that the S$1.4 billion deal will be advantageous for ESR-Reit unitholders from the acquisition of a portfolio on which the market has placed a premium. However, the benefits of the deal are less clear-cut for unitholders of Ara Logos.

When the market opened on Monday, ESR-Reit units were trading at a high of S$0.485, up 4.3 per cent or S$0.02. The counter saw some heavy trading in the first few minutes with 4.6 million units changing hands as at 9.06am. Meanwhile Ara Logos fell 3.7 per cent or S$0.035 to S$0.90 with 1.6 million units traded.

By 11.43 am, ESR-Reit units were trading 2.2 per cent or S$0.01 higher at S$0.475 while Ara Logos lost 3.7 per cent or S$0.035 to S$0.90.

The news comes one weekend after the manager of both Reits proposed a S$1.4 billion merger in a deal combining S$5.4 billion in total assets.

The new entity will have 87 properties spread across Singapore and Australia, as well as 41 properties owned via investment funds in Australia. And with a theoretical free-float market capitalisation of S$2.5 billion, it will be among the 10 largest Reits listed here.

CGS-CIMB believes the merged entity, named ESR-Logos Reit, could see a re-rating given the potential acceleration in inorganic growth underpinned by a large sponsor pipeline and potential lower cost of funding.

The research team noted that the bulk of the accretion will come from lower financing cost and the payment of upfront land premium. It added that the merger, if completed, will create the 9th largest Reit by free float in Singapore. ESR-Logos Reit will also be the 13th largest S-Reit by assets under management.

It has an unchanged "add" call on both Reits, with a target price of S$0.961 and S$0.538 on Ara Logos and ESR-Reit respectively.

READ MORE: ESR-Reit, Ara Logos propose merger with pricing favouring ESR-Reit unitholders