Just over three months after Hong Kong-listed ESR unveiled a deal to establish Asia’s largest fund manager by acquiring ARA Asset Management, the Hong Kong-based fund manager has proposed to upgrade ESR-REIT into one of the 10 largest real estate investment trusts listed in Singapore by acquiring ARA-Logos Logistics Trust for S$1.4 billion ($1.04 billion).
The two companies said that the deal, which has a total acquisition cost of S$2.4 billion after assumption of debt and other costs, will create ESR-Logos REIT, a combined entity set to benefit from enhanced access to warehouse assets as the ESR-ARA merger prepares to establish a logistics developer with nearly 30 million square metres (323 million square feet) in its portfolio.
The transaction is conditional on completion of the ESR-ARA merger, which is set to be voted on at an extraordinary general meeting of ESR shareholders early next month with the board already said to have received backing from investors representing more than the 50 percent ownership level necessary to win approval.
“The Proposed Merger is in line with ESR-REIT’s strategy to accelerate our exposure to the sustainable growth of in-demand logistics properties – the largest secular growth opportunity in Asia, driven by the rapid rise of e-commerce and further amplified by paradigm shifts in global manufacturing supply chains,” Adrian Chui, chief executive officer of ESR-REIT’s manager.
The transaction, which is subject to approval by shareholders in both trusts, would create a combined entity with $4 billion in assets under management. By market capitalisation, ESR-Logos REIT’s S$2.5 billion free float would rank eighth on the Singapore exchange, just behind OUE Commercial Trust, and ahead of CapitaLand China Trust.
“The benefits of an enlarged asset base under the merged ELOG (ESR-Logos) are numerous and immediate, said Karen Lee, chief executive ARA-Logos REIT’s manager. “It enhances our financial capacity and flexibility to pursue larger and more sizeable growth opportunities.”
The proposed ESR-Logos REIT will 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).
Both ESR and Logos could benefit from a vehicle for selling 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.
ESR in April partnered with Singapore’s GIC to purchase 1.4 billion square metres of Australian logistics properties from Blackstone for $2.9 billion in a deal which more than doubled its space under management in the country as of 31 December 2020.
On Friday, Logos announced that, with backing from the Abu Dhabi Investment Authority (ADIA), it has agreed to purchase properties near Sydney airport from Qantas Airways for $595 million, which it expects to develop into $2 billion in warehouses. In July, Logos had struck a $1.7 billion deal to acquire the Moorebank Logistics Park in southwestern Sydney which it expects to develop into 850,000 square metres in warehouses.
Singapore REIT Consolidation
Lee, who is in line to serve as deputy CEO of ESR-Logos while Chui would assume the chief executive role, said the wider asset base of the combined unit will also be enable it to rebalance its portfolio while, while becoming more attractive to institutional investors through its expanded scale.
“The new E-Log (ESR-Logos) will create a future-ready resilient portfolio, with a focus on new economy real estate and logistics, which has proven its resilience despite the pandemic, and it’s also the largest secular growth trend in Asia,” she said in an online briefing on Friday.
The managers of the combined entity said they propose to create value for their investors by acquiring value-enhancing properties and divesting non-core assets, among other strategies.
Chaired by Warburg Pincus head of real estate Jeffrey Perlman, ESR has been seeking opportunities to consolidate Singapore’s industrial REIT sector since acquiring the manager of Cambridge Industrial Trust in 2017, which was later renamed as ESR-REIT.
In 2018 ESR-REIT went on to acquire Viva Industrial Trust, but last year was frustrated in an attempt to buy out Sabana REIT when a proposed share purchase scheme was voted down in December.
90% New Equity
The proposal values ARA Logos’ 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.
Taking into consideration the need to refinance ARA Logos’ S$767 million in existing debt and S$101.5 million to repay the REIT’s perpetual securities, along with S$87.9 million for upfront land premiums and other fees, ESR-REIT would be paying a total of S$2.385 billion to seal the deal.
Financing for the transaction will come through the issuance of new ESR-REIT units estimated to reach S$1.24 million, by acquiring new debt worth S$877 million and through new perpetual securities worth S$251.5 million.
Under the proposed timeline presented on Friday, ESR-REIT will hold an extraordinary general meeting in early January 2022 to consider the planned merger, while ARA Logos will have the EGM for its unitholders in that same month.
Should the proposal be approved, ARA Logos would be scheduled to be delisted from the Singapore stock exchange in February next year.
The proposed merger is expected to be distribution per unit (DPU) accretive for unitholders on a 2020 pro forma basis for the holders of the two merged firms, rising by 5.8 percent to 2.9352 cents for ESR-REIT owners and up by 8.2 percent to 5.51222 cents for ARA Logos unitholders.
Beatrice Laforga provided additional research for this story.