ESR-REIT has sweetened its merger offer for ARA LOGOS Logistics Trust (ALOG) after the proxy advisers recommended ALOG’s unitholders vote against its previous bid, the REITs said in filings to SGX Saturday.
The proxy advisers had determined the deal terms were not compelling for ALOG’s unitholders, with most of the benefits of the merger accruing to ESR-REIT, the filing said.
ESR-REIT had said in October that the previous offer had used the two REITs’ 52-week historical highs as a key input for setting the terms of the deal — which some analysts had said was disappointing.
New offer’s terms
The new consideration will be S$0.97 for each ALOG unit, payable as S$0.097 in cash and 1.7729 new ESR-REIT units, issued at S$0.4924 each, the filings said. The previous offer was S$0.95, with S$0.095 a unit in cash and 1.6765 new ESR-REIT units issued at S$0.51 each.
The new offer is an increase of 2.1 percent for the cash consideration and 5.8 percent for the unit-based consideration, for a total increase of 5.3 percent, based on recent trading of ESR-REIT’s units, the filing said.
In total, ESR-REIT’s merger offer is around S$140.7 million in cash and the issuance of around 2.57 billion new units at S$0.4924 each, for an aggregate S$1.41 billion, the filings said.
For ESR-REIT unitholders, on a pro forma basis, the new offer will have distribution per unit (DPU) accretion of 4.7 percent, compared with 5.8 percent for the original offer, the filings estimated.
For ALOG unitholders, on a pro forma basis, the new offer will have distribution per unit (DPU) accretion of 12.8 percent, compared with 8.2 percent for the original offer, the filings estimated.
Why sweeten the bid?
If successful, the merger will create a REIT — to be called ESR-LOGOS REIT, or E-LOG — in the top 10 of Singapore’s REITs by asset value, with total assets valued at S$5.4 billion, the filing said.
ESR-REIT cited three reasons for sweetening its bid:
- The recommendations from Institutional Shareholder Services and Glass, Lewis Co., the proxy advisers;
- The two REITs’ common sponsor and overlapping mandates, which, in the absence of a merger, would put them in competition for new assets from ESR Group;
- And the strong performance of Australia’s logistics sector, where 45 percent of ALOG’s portfolio by valuation is located.
Adrian Chua, CEO and executive director of ESR-REIT’s manager, said the two REITs are a strategic fit, holding in-demand logistics assets.
“Together, we are in the right sector and in a good position to accelerate our exposure to the sustainable in-demand New Economy real estate, driven by the rapid rise of e-commerce and paradigm shifts in global manufacturing supply chains. Our strategic rationale for the merger remains intact,” Chua said in the statement.
ALOG’s Lee: deal’s merits ‘compelling’
Karen Lee, CEO of ALOG’s manager, said the merger’s merits are “intact and compelling.”
“The revised offer reflects ESR-REIT’s confidence in merging with ALOG to create a leading New Economy APAC S-REIT with a trajectory to supercharge growth. With this revised offer, the attractiveness of the proposal is further enhance,” Lee said in the statement.
“We would like to reiterate that the proposed transaction is not a sale process of ALOG or its assets. ALOG Unitholders are not selling out their units, but instead rolling over into an enlarged platform with a strong Sponsor, while crystalizing part of their investment returns in cash,” she said.
“This accretive merger allows the enlarged REIT to utilise its enlarged scale and customer base, diversified portfolio and potentially improved capital cost to leverage on our sponsor’s pipeline to grow instead of competing with each other on a standalone basis,” Lee said.
Unitholders of each REIT must vote to approve the deal, the filing said.
ESR-REIT’s extraordinary general meeting (EGM) for unitholders to vote on the deal will be delayed, with the new date expected to be in March, the filing said.
Clarification: An earlier version of this article stated that more than 50 percent of the unitholders of each REIT must vote to approve the deal. Some resolutions related to the deal will require 75 percent of units to vote in favour.