IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

Arun has over 15 years’ experience covering the Technology sector. During this time, he has worked with technology start-ups and as an equity analyst in investment banks and independent research firms. He was formerly a Technology Analyst for Canaccord Genuity, Altium Securities, Espirito Santo Investment Bank, Noble Group and Clear Capital. He has a dual Master’s degree in Financial Engineering and Industrial and Operations Engineering from the University of Michigan. He obtained his Bachelor’s degree in Mechanical Engineering from the Indian Institute of Technology, Bombay. He is also a CFA charterholder.

IPOs and Catalysts/Events

ARA LOGOS/ESR-REIT Scheme Meeting on 21 March, IFA Opinion

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Global Equity Research Ltd

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Event-Driven

<p><a href="https://www.smartkarma.com/entities/esr-reit" target="_blank" data-smartkarma-citation="entities:10934:1" rel="noopener">ESR-REIT (EREIT SP)</a> announced the proposed merger with <a href="https://www.smartkarma.com/entities/ara-logos-logistics-trust" target="_blank" data-smartkarma-citation="entities:937:1" rel="noopener">ARA LOGOS (ALLT SP)</a> by way of a trust scheme of arrangement. Under the scheme consideration, each ALLT unitholder will receive S$0.095 in cash and 1.6765 new EREIT units at an issue price of S$0.510. The total consideration implies a gross exchange ratio of 1.863x and a total scheme consideration of S$0.950 per ALLT unit, which is a 1.6% premium to the ALLT last close price of S$0.935 per unit (on 14 October). </p><p>The merger was widely anticipated to avoid conflicts of interest arising from the proposed acquisition of ARA Asset Management by <a href="https://www.smartkarma.com/entities/esr-cayman-ltd" target="_blank" data-smartkarma-citation="entities:27983:1" rel="noopener">ESR Cayman (1821 HK)</a> for a total consideration of US$5.2 billion, which was announced on 5 August 2021. ESR Cayman which owns 67% of EREIT’s manager would also own 100% of ALLT’s manager on completion of the acquisition resulting in overlapping investment mandates.</p><p>A key issue is on pricing particularly the EREIT issue price of S$0.510 which is based on EREIT’s 52-week high. Notably, at the last close EREIT price of S$0.465, implies a scheme consideration of S$0.875 per ALLT unit, which is a -6.5% discount to the ALLT last close price of S$0.935 per unit (on 14 October). </p><div class="content-highlight"><p>As the cash consideration represents just 10% of the total scheme consideration, ALLT unitholders have greater exposure to any post-merger share price gains driven by the enlarged REIT’s higher free float, lower cost of capital, cost savings and higher growth potential. While short-term pricing concerns will linger, we note that the scheme consideration even at the last close EREIT price seems reasonable. Consequently, we believe that the merger will get the nod from both sets of unitholders.</p></div>

ESR-REIT (EREIT SP) announced the proposed merger with ARA LOGOS (ALLT SP) by way of a trust scheme of arrangement. Under the scheme consideration, each ALLT unitholder will receive S$0.095 in cash and 1.6765 new EREIT units at an issue price of S$0.510. The total consideration implies a gross exchange ratio of 1.863x and a total scheme consideration of S$0.950 per ALLT unit, which is a 1.6% premium to the ALLT last close price of S$0.935 per unit (on 14 October). The merger was widely anticipated to avoid conflicts of interest arising from the proposed acquisition of ARA Asset Management by ESR Cayman (1821 HK) for a total consideration of US$5.2 billion, which was announced on 5 August 2021. ESR Cayman which owns 67% of EREIT’s manager would also own 100% of ALLT’s manager on completion of the acquisition resulting in overlapping investment mandates.A key issue is on pricing particularly the EREIT issue price of S$0.510 which is based on EREIT’s 52-week high. Notably, at the last close EREIT price of S$0.465, implies a scheme consideration of S$0.875 per ALLT unit, which is a -6.5% discount to the ALLT last close price of S$0.935 per unit (on 14 October). As the cash consideration represents just 10% of the total scheme consideration, ALLT unitholders have greater exposure to any post-merger share price gains driven by the enlarged REIT’s higher free float, lower cost of capital, cost savings and higher growth potential. While short-term pricing concerns will linger, we note that the scheme consideration even at the last close EREIT price seems reasonable. Consequently, we believe that the merger will get the nod from both sets of unitholders.

Frasers Logistics & Commercial Trust (FLT SP)

ESR-REIT’s Proposed Merger with ARA LOGOS