ESR-Reit raises offer for ARA Logos; EGM and scheme meeting deferred

SINGAPORE (THE BUSINESS TIMES) – ESR-Reit has increased its offer to unitholders of ARA Logos Logistics Trust (ALog) for the merger of the two Reits after  proxy advisers recommended they vote against it, citing process and pricing issues.

The scheme consideration for the proposed merger was raised to 9.7 cents in cash and 1.7729 in ESR-Reit units for every ALog unit, from 9.5 cents in cash and 1.6765 in ESR-Reit units previously, the two Reits announced on Saturday (Jan 22).

The higher offer works out to a 2.1 per cent rise for the cash portion and 5.7 per cent for the unit portion.

The new price tag for the proposed merger is 97 cents per ALog unit, based on an issue price of 49.24 cents per ESR-Reit unit. The previous consideration was 95 cents per ALog unit, but based on a higher issue price of 51 cents per ESR-Reit unit.

The extraordinary general meeting and the scheme meeting to vote on the proposed merger have been deferred. The new date will be announced in due course.

Units of ESR-Reit closed flat at 47 cents on Friday, while ALog units rose 0.5 cent or 0.6 per cent to close at 90 cents.

The managers of both Reits said the new consideration would put the illustrative value of the scheme consideration at 93.3 cents per ALog unit based on the volume-weighted average price (VWAP) for ESR-Reit units over the last month of 47.16 cents. This represents a 5.3 per cent increase from the original proposal of 88.6 cents per ALog unit.

The historical pro forma distribution per unit accretion to ALog unit holders increases from 8.2 per cent to 12.8 per cent, and the historical pro forma net asset value per unit accretion increases from 2.2 per cent to 5.3 per cent.

Proxy advisory firm Glass Lewis had said earlier this month that the terms of the terms of the scheme consideration are unfavourable to ALog unit holders as they imply a discounted market valuation for ALog’s units.

The issue price of 51 cents per ESR-Reit unit was close to ESR-Reit’s 52-week high of 52 cents, but at a significant premium to ESR-Reit’s unit price of 46.5 cents ahead of the merger announcement as well as to VWAPs over several other time periods.

Following the completion of ESR Group’s acquisition of ARA Asset Management, both ESR-Reit and ALog will share a common sponsor and have overlapping mandates. As such, in the absence of a merger, both ESR-Reit and ALog will have to compete for new assets from ESR Group, the manager of ESR-Reit said. 

The merger will address these issues of overlapping mandates in relation to asset
pipeline, tenant and operational network, and financial resources from the sponsor, the manager added.