Independent financial adviser in favour of ESR-Reit, ARA Logos merger

SINGAPORE (THE BUSINESS TIMES) – The independent financial adviser to Hong Kong-listed ESR Cayman’s independent board committee and independent shareholders has recommended that shareholders vote in favour of the proposed $1.4 billion merger, where ESR-Reit will acquire all of ARA Logos’ units in exchange for a combination of cash and new units.

If the merger is approved, ESR-Logos Reit will contain $5.4 billion in total assets across 87 portfolio properties in Singapore and Australia, as well as 41 properties owned via investment funds in Australia.

Based on the analyses of comparable companies and similar past transactions, as well as taking into consideration the benefits from the merger, independent financial adviser Somerley Capital said in a letter that the total consideration is fair and reasonable.

In order to evaluate the total consideration, Somerley had analysed listed companies similar to ARA Group.

These companies include those that had disclosed real estate fund management business as one of their reportable segments and with significant real estate assets under management, They also have a market capitalisation of at least US$1 billion as at the last practicable date.

A total of nine comparable companies were identified: Blackstone, Brookfield Asset Management, EQT AB Group, Partner Group Holding, The Company, Patrizia AG, Charter Hall Group, Goodman Group and Centuria Capital Group.

The price-to-earnings (P/E) ratios of these companies range from approximately 16.4 times to 65.3 times, with a mean and median of approximately 32.6 times and 29.6 times respectively.

The P/E ratio of ARA as represented by the total consideration of approximately 23.9 times is lower than the mean and median and falls within the range of P/E ratios of the nine companies.

The EV/Ebitda (enterprise value/earnings before interest, tax, depreciation and amortisation) ratio of ARA is 18.4 times, which is also lower than the mean and median of the adjusted EV/Ebitda ratios of the companies.

Meanwhile, the P/E and adjusted P/E ratios of previous acquisitions including that of Landmark Partners and Exeter Property Group as well as the privatisation of ARA in 2016 stood at between 19.1 and 56.1 times.

The P/E ratio and adjusted P/E ratios of ARA is approximately 23.9 times based on the historical financial information and 22.2 times after considering other impacts arising from the pre-completion reorganisation regarding further acquisition of Logos.

These are higher than the privatisation of ARA in 2016 but lower than the Landmark transaction in 2021.

The EV/Ebitda and adjusted EV/Ebitda ratios of the comparable acquisitions range from 15.8 times to 23.4 times while that of ARA is approximately 17.2 times based on the historical financial information and 18.4 times after considering other impacts.

This falls between the EV/Ebitda ratios of the Landmark and Exeter acquisitions but higher than the privatisation of ARA in 2016.

However, the independent financial adviser noted that the ARA Group experienced fast growth following its privatisation as evidenced by its compound annual growth rate (CAGR) from 2018 to 2020 of 37.8 per cent and 10 per cent in terms of fee revenue and Ebitda respectively.

This is significantly higher than the respective CAGR of approximately -1.4 per cent and 2 per cent from 2014 to 2016.