THE revised scheme consideration for ESR Reit's offer for ARA Logos Logistics Trust (ALog) was determined by various factors such as the merger's commercial appeal, the quality of ALog's portfolio and the strong conviction that a merger is the best way forward for both, ALog's manager has said.

In a filing to the Singapore Exchange which highlighted the manager's response to unitholders' frequently asked questions, ALog's manager emphasised that the "proposed transaction is intended as a merger and not a complete sell-out of ALog and/or its underlying assets".

"As such, the relative valuations of ALog and ESR-Reit would need to be balanced from the perspectives of their respective unitholders."

The manager added that if the merger is approved, ALog unitholders will remain invested in ALog's assets, which will be a part of the enlarged Reit, while getting part of their investment returns in cash.

The manager said that the revised scheme was a result of commercial negotiations between the two Reits' managers, also taking into account the following factors:

* The historical relative trading prices of ALog's and ESR-Reit's units;

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* Balancing the respective financial impact to ALog's and ESR-Reit's unitholders from DPU and NAV per unit accretion and dilution perspectives on a pro forma FY2020 basis; and

* The gearing of the combined Reit post-merger.

Last month, ESR-Reit sweetened its offer to unitholders of ALog after proxy advisers recommended that unitholders vote against it, citing process and pricing issues.

The scheme consideration for the proposed merger has been raised to 9.7 Singapore 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 merger is also seen as addressing the issue of overlapping mandates relating to asset pipeline, tenant and operational network, and financial resources. It is a "win-win", as ESR-LOGOS Reit will have access to the ESR Group's assets of over US$59 billion in new economy pipeline and US$10 billion work-in-progress development pipeline "in an increasingly scarce environment for quality logistics properties", said ALog's manager.

The acquisition of ARA Asset Management by ESR Group was completed on Jan 20, making the ESR Group an indirect majority controlling shareholder of the LOGOS Group. Both ESR-Reit and ALog thus share a common sponsor, and have overlapping mandates.

"Since ESR-REIT and Alog have overlapping mandates, conflicts of interest may inevitably arise, which may negatively impact both Reits," the manager said. "In the absence of the proposed merger, both ESR-Reit and ALog will have to compete for the common pipeline of new assets and operational and financial resources from the ESR Group, and will also be competing against each other for new assets and tenants from third parties."

It added that the ESR Group would have to split its resources to support two Reits with overlapping investment mandates if they were to continue to operate independently.

Units of ESR-Reit closed at 43 Singapore cents, down half a cent or 1.15 per cent, on Tuesday. ALog units closed unchanged at 83 Singapore cents.