The managers of ESR-REIT and ARA Logos Logistics Trust (ALOG) have set 21 March as the date for ALOG’s unitholders to vote on the Singapore-listed trusts’ proposed merger, with executives laying out the case for the deal to investors on Friday.
After concerns were raised last month by proxy advisors who questioned whether the S$1.4 billion ($1.04 billion) buyout of ALOG represented fair value, the managers revised the terms to provide a balance for unitholders of both trusts, ESR-REIT said in a presentation filed with the Singapore Exchange.
The managers also noted that because ESR-REIT and ALOG now share a common sponsor after Hong Kong-listed ESR completed its acquisition of Singapore-based ARA Asset Management last month, the trusts’ merger would remove conflict-of-interest concerns.
“This merger is critical as it addresses the issue of overlapping mandates and potential conflicts while allowing the enlarged ESR-Logos REIT to leverage the sponsor’s resources to drive our growth trajectory, thereby safeguarding the interest of both sets of unitholders,” said Adrian Chui, chief executive and executive director of ESR-REIT’s manager.
Last October, the managers announced a deal valuing ALOG’s equity at S$0.095 per unit, with ESR-REIT offering to pay 10 percent in cash and 90 percent in newly issued ESR-REIT equity.
Proxy advisors ISS and Glass Lewis deemed those terms unfavourable, pointing to what they deemed a lowball valuation for ALOG. The revised terms, announced on 22 January, value ALOG’s equity at S$0.097 per unit with a lower issue price for the new ESR-REIT units. The advisors have yet to comment on the revised offer.
Speaking at media briefings Friday, the managers reiterated their conviction that a merger would be in the best interest of both trusts’ unitholders.
“If ESR REIT and ALOG were to continue to operate independently, I believe that the sponsor would be indifferent and treat both the REITs fairly,” said Karen Lee, chief executive of ALOG’s manager. “But the sponsor would have to split its resources to support two REITs with overlapping mandates. Over time, both REITS may not be able to fully leverage the sponsor’s resources for sustainable growth and would have to compete for the same pool of resources from the sponsor or even for the same third party’s asset.”
When asked why ESR-REIT was offering a premium of 1.4 times net asset value for ALOG — a multiple that the managers dubbed the “highest in the history of REIT privatisation” — Chui argued that logistics assets are trading at a premium because they are in a thriving sector and that “things are cheap for a reason”.
“If you want something, you gotta pay for it,” the CEO said.
ESR REIT and ALOG will hold extraordinary general meetings on 21 March, with ALOG unitholders scheduled to vote on the revised offer. If the deal is approved, ALOG could be delisted as early as May.
The proposed ESR-Logos REIT would have a portfolio of 87 properties, with 67 of those assets in Singapore and the remaining 20 in Australia. Also included in the combined entity would be 41 Australian properties currently held by ARA Logos funds covering a net leasable area of 2.2 million square metres (24.1 million square feet).
The merged vehicle could benefit both ESR and Sydney-based Logos by enabling them to sell on assets from their ever-growing portfolio of core and development funds, with ESR-Logos REIT also potentially building its holdings through acquisitions from other sources.
Chui is in line to serve as chief executive of ESR-Logos REIT’s manager, while Lee would assume a deputy CEO role.