Frasers' logistics and commercial Reits propose S$1.58b merger

Singapore

A S$1.58 BILLION merger between Frasers Logistics & Industrial Trust (FLT) and Frasers Commercial Trust (FCOT) has been proposed by the managers of both real estate investment trusts (Reits).

The proposed deal will be by way of a trust scheme of arrangement, which will see FLT acquiring all units of FCOT for about S$1.54 billion, the managers said on Monday in a bourse filing.

FLT will pay the scheme consideration via a combination of cash and the issuance of new FLT units to FCOT unitholders.

For each FCOT unit they hold, FCOT unitholders will receive S$0.151 in cash and 1.233 new FLT units at an issue price of S$1.24 apiece. This means FCOT unitholders will be paid a scheme consideration of S$1.68 for each FCOT unit held, which implies a gross exchange ratio of 1.355 times.

This represents a premium of around 0.6 per cent, 3.5 per cent and 8.2 per cent to FCOT's last traded price on Nov 27, one-month volume-weighted average price (VWAP) and 12-month VWAP, respectively.

The total cost of the proposed merger will be around S$1.58 billion. This comprises the S$1.54 billion scheme consideration, as well as a S$11.2 million acquisition fee and S$35 million in professional and other fees.

If the proposed merger is completed, sponsor Frasers Property (FPL) and its related groups are expected to own a 21.9 per cent stake of the enlarged Reit. Other FCOT unitholders are expected to hold 24.6 per cent, while other FLT unitholders are expected to hold 53.5 per cent.

Currently, FPL holds around 19.6 per cent interest in FLT and 25.9 per cent interest in FCOT.

The enlarged Reit will hold around S$5.7 billion in assets across the Asia-Pacific, Europe and the UK - and is expected to be one of the top 10 S-Reits by market capitalisation.

Its portfolio will comprise around 2.6 million square metres of space with some 300 tenants in 98 properties across five countries.

If the proposed merger goes through, the enlarged Reit will be managed by FLT's manager. Its exposure to any single asset will also be no more than 12 per cent by value.

The managers added that the proposed merger and asset acquisition is DPU (distribution per unit) accretive on a pro forma basis for both FLT and FCOT unitholders by 2.2 per cent and 4.2 per cent respectively.

Robert Wallace, chief executive of FLT's manager, said the merger will also enhance financial capacity and flexibility to pursue acquisitions and a right of first refusal pipeline in excess of S$5 billion.

"We will be in an even stronger position to pursue growth and continue to deliver long-term value to our unitholders," he said.

Jack Lam, chief executive officer of FCOT's manager, said the enlarged entity will be able to unlock synergies and explore new opportunities in the logistics, industrial and commercial sectors with the combined portfolio.

A lot of synergies can be unlocked in Australia - a common market for both FCOT and FLT - in terms of operations and management, Mr Lam said at a briefing on Monday.

On news of the merger, FLT units rose 3.2 per cent or four Singapore cents to S$1.28 as at 2.28pm, around two hours after the counter resumed trading before closing flat at S$1.24.

FCOT units rose 3.3 per cent or 5.5 cents to S$1.725 as at 2.25pm, and lost some of its gains to close at S$1.71, 2.4 per cent or four cents higher.

"The enlarged Reit will benefit from size, scale, diversification, greater debt headroom and bigger acquisition pipeline," said RHB analyst Vijay Natarajan, who sees the scheme consideration of S$1.68 per FCOT unit as fair, given the benefits for unitholders. "Though it's a win-win for both, we believe the deal benefits FCOT unitholders more as the smaller size of the Reit was limiting its growth potential."

In connection with the merger, the managers of FLT and FCOT are also proposing a £90.1 million (S$160 million) acquisition of the other 50 per cent interest in Farnborough Business Park, a 46.5 hectare freehold business park with a net lettable area of about 50,882 square metres.

It has a committed occupancy rate of 99.1 per cent - inclusive of a new lease concluded in October 2019, and WALE of 6.8 years as at Sept 30.

READ MORE: 'Limited' risk of big price correction for S-Reits