ESR-Reit, ALog Trust unit holders vote in favour of merger to form ESR-Logos Reit

SINGAPORE (THE BUSINESS TIMES) - The managers of ESR-Reit and Ara Logos Logistics Trust must surely be heaving huge sighs of relief.

After a series of speed bumps, unit holders of the two real estate investment trusts (Reits) on Monday (March 21) voted overwhelmingly in favour of the merger to form ESR-Logos Reit (E-Log Reit).

The Reits had in October 2021 mooted the $1.4 billion merger. The enlarged entity will have $5.4 billion in total assets under management and rank among the 10 largest Singapore-listed real estate investment trusts (S-Reits) based on its theoretical combined market capitalisation.

The proposed merger had been contingent on the merger between the two Reits' sponsors - ESR Cayman and Ara Asset Management. This "mothership merger" was completed in January 2022, paving the way for the union between ESR-Reit and ALog Trust.

But the proposed deal had run the risk of being derailed following negative reports by two proxy advisory firms.

This prodded the Reit managers into improving the merger offer - and postponing the planned dates for their EGMs to vote on the proposed deal by a couple of months.

Some 98.6 per cent of ESR-Reit unit holders voted in favour of the merger, and 98.4 per cent agreed to the issuance of new ESR-Reit units to ALog Trust unit holders at an issue price of 49.24 cents apiece as part of the consideration of the merger.

"The EGM results validate our belief that unit holders appreciate the importance of size and scale as we embark on our next phase of growth," said Mr Adrian Chui, chief executive officer of the ESR-Reit manager.

"Additionally, this successful merger addresses the issues of the overlapping investment mandates and conflicts of interest arising from a common sponsor, thereby allowing our sponsor, ESR Group, to concentrate its efforts and resources on our single enlarged platform," he added.

At a separate EGM for ALog Trust unit holders held hours later at 3pm, 94.8 per cent of the total number of votes received from Alog Trust unit  holders were cast in favour of the extraordinary resolution to amend the trust deed.

The proposed amendments to the trust deed were to facilitate the implementation of the scheme.

At a scheme meeting following this EGM, 62.9 per cent in number of the ALog Trust unit holders present and voting by proxy voted to approve the scheme.

They represented 92.5 per cent in value of the ALog Trust units held by the unit holders present and voting by proxy at the scheme meeting.

This is understood to have included the approval of Ivanhoe Cambridge Asia, which held nearly 126.7 million units in ALog Trust, amounting to more than 8.7 per cent of its total outstanding units. Ivanhoe Cambridge, ALog Trust's largest unit holder, had provided an irrevocable undertaking to support the deal.

The ALog Trust manager, the parties acting in concert with the ESR-Reit manager in connection with the merger, and the directors of the ALog Trust manager who are not considered independent for the purposes of the scheme abstained from voting on the resolution to approve the scheme.

Still, even without Ivanhoe Cambridge's favourable vote, ALog Trust would have passed the requirement for the support of unit holders representing at least 75 per cent in value of the total votes cast for the scheme to be approved.

A total of 811 unit holders representing 534.4 million ALog Trust units were present or voted by proxy at the scheme meeting. This is just over a third of ALog Trust's 1.45 billion outstanding units, according to Bloomberg data.

"We believe that ALog Trust unit holders' decision to support the merger is a testament to the strong strategic merits for the formation of the larger E-Log Reit, a leading new economy, Asia Pacific-focused Reit backed by a best-in-class sponsor, and armed with a clear growth pipeline," said Ms Karen Lee, chief executive of Alog Trust's manager.

"Moving forward, Adrian and I will work hand in hand to accomplish the milestones we have communicated to unit holders as we pursue long-term sustainable and accretive growth for E-Log Reit," she added.

Mr Chui will be the chief executive of the manager of E-Log Reit following the merger, while Ms Lee will take on the role of deputy chief executive of the manager of the enlarged entity.

Back in mid-January, proxy advisory firms Institutional Shareholder Services (ISS) and Glass Lewis recommended that unit holders of ALog Trust vote against the merger.

The firms objected to the proposed merger on grounds that the process had been "questionable" and that the offer price was unfair to ALog Trust unitholders.

In response, the Reit managers postponed the EGMs planned for Jan 27 and sweetened the deal for ALog Trust unitholders.

The scheme consideration 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.

Earlier this month, both proxy advisers had issued fresh reports which recommended unit holders to vote in favour of the merger based on the revised terms of the offer.

However, while noting the improved terms, both proxy advisers remained not too excited about the deal.

"We continue to take issue with the merger parties' insistence of applying an above-market value to ESR-Reit's units and using such value as the basis for determining the value of the revised scheme consideration," Glass Lewis said.

ISS added that the transaction "does not represent an attractive premium when considering the improvement in ALog Trust's valuation over the past year" and reiterated concerns that the deal will be made between related parties without considering alternative transactions.

Yet, unit holders appear to have been won over by the "compelling" underlying strategic rationale behind the merger.

With the two Reits now sharing a common sponsor, the merger was seen as crucial to avoid conflict of interest.

The enlarged Reit is also expected to benefit from having greater scale, improved tenant diversification and greater access to capital at a more competitive cost.

"Through this enlarged platform, we are now in a better position to pursue growth opportunities, create value and deliver long-term sustainable returns for our combined set of unit holders," Mr Chui said.

Subject to the necessary approvals, the merger is expected to become effective by the end of April 2022.

Following this, ALog Trust will be delisted from the Singapore Exchange around May 2022.