ESR-REIT to acquire ARA LOGOS Logistics Trust for around S$1.4B in cash and share deal

ESR-REIT property near Singapore’s Tai Seng MRTESR-REIT property near Singapore’s Tai Seng MRT

ESR-REIT has proposed acquiring ARA LOGOS Logistics Trust, or ALOG, for a total consideration of around S$1.4 billion in cash and shares, in a deal which will create an industrial REIT with around S$5.4 billion in assets across Singapore and Australia.

Under the deal, for each ALOG unit, ESR-REIT will pay S$0.095 a unit in cash and 1.6765 new ESR-REIT units issued at S$0.51 each, for a total of S$0.95 a unit, the REITs said in a filing to SGX Friday.

Units of ESR-REIT closed Thursday at S$0.465, while ALOG units closed at S$0.935; both REITs requested a trading halt Friday.

ESR-REIT’s manager said the deal will be financed via unsecured banking facilities from DBS Bank, Malayan Banking (Maybank)’s Singapore branch and Sumitomo Mitsui Banking Corp.’s Singapore Branch.

The combined REIT, to be called ESR-LOGOS REIT, or E-LOG, will hold a portfolio of logistics/warehouse, high-specification industrial properties, business parks and general industrial properties, with the combination set to be among the top 10 largest Singapore REITs (S-REITs) by free-float market capitalization, the filing said.

The increased market capitalization is expected to lead to greater representation in the FTSE EPRA Nareit Global Developed Index, the filing said.

Adrian Chui, who is currently CEO and executive director of ESR-REIT’s manager and who is set to become CEO of the manager of the combined REITs, said the deal was in line with his REIT’s strategy to boost exposure to logistics properties, calling it “the largest secular growth opportunity in Asia” amid the rise of e-commerce.

“The proposed merger will also deepen our presence in key Singapore industrial clusters and expand our foothold in new economic hubs in Australia,” Chui said in the statement.

Chui said that via ESR-REIT’s sponsor, ESR Group, E-LOG will have access to a pipeline of properties valued at over US$50 billion once ESR Cayman completes its merger with ARA Asset Management. ESR Group is the largest Asia Pacific real estate fund manager, with assets under management of US$131 billion as of end-June, the filing said.

Karen Lee, who is CEO of ALOG’s manager and who is set to become deputy CEO of E-LOG’s manager, called the deal a “win-win transaction” for unitholders of both REITs as the merger will enhance the financial capacity and flexibility to pursue larger growth opportunities.

Once the deal is completed, the REIT will focus on expanding in markets where the sponsor has an operating platform, footprint and/or network, including Southeast Asia, China, South Korea, Japan, India and Australia, the filing said.

DPU accretive

On a pro forma basis, the deal is expected to be distribution per unit (DPU) accretive for unitholders of ESR-REIT and ALOG by 5.8 percent and 8.2 percent, respectively, the REITs estimated.

E-LOG will hold 87 portfolio properties, including 20 in Australia, and 41 fund properties, or properties held either directly or indirectly via investment funds, in Australia, the filing said.

The merger will also diversify the tenant base and reduce concentration risks, with the combined REIT to have 437 tenants, with no one tenant accounting for more than around 4.6 percent of gross rental income, the REITs said.

The proposed merger of the REITs is conditional on the merger of ESR Cayman and ARA Asset Management being completed, the filing said. If the REITs’ merger is completed, ESR Group will hold around 10.9 percent of E-LOG, the filing said.

The deal is also contingent on the approval of ESR-REIT and ALOG unitholders in extraordinary general meetings, the filing said.

The REITs said they expect the deal to be completed in February 2022.