ESR-Reit, Viva Industrial Trust to merge, forming group with $3b in assets

If successful, the merger will be the first in the history of Singapore Reits, and analysts say Viva Industrial Trust is unlikely to be ESR-Reit's last target.

SINGAPORE - Managers of ESR-Reit and Viva Industrial Trust (VIT) on Friday (May 18) announced a proposed merger to create Singapore's fourth largest industrial Reit with a combined $3 billion in assets.

The deal, which will be the first in the history of Singapore Reits if successful, will be completed by way of a trust scheme of arrangement.

ESR-Reit will acquire all of VIT's stapled securities, and in return issue new ESR-Reit units to the stapled security holders, providing VIT with an implied equity value of about $936.7 million.

Based on the issue price of $0.54 per new ESR-Reit unit, VIT stapled securityholders can expect to receive $9.60 in cash, and 160 new ESR-Reit units for every 100 stapled securities held.

ESR Funds Management will be the manager of the enlarged trust, which will benefit from a larger market cap of $1.7 billion, said the managers. Subject to regulatory approvals, certain key management executives and board members of Viva Industrial Trust Management will also be joining the ESR-Reit Manager.

The total acquisition cost of approximately $1.5 billion to be paid by ESR-Reit includes a scheme consideration of $936.7 million, and a refinancing of VIT's existing debt of $525 million among other expenses. The scheme consideration will be satisfied 10 per cent in cash, and 90 per cent through the issuance of new ESR-Reit units, implying a gross exchange ratio of 1.778 times, the managers said.

They added that the transaction is deemed to be value-accretive for VIT stapled securityholders, and distribution per unit (DPU)-accretive for ESR-Reit unitholders on a historical pro-forma basis.

According to the manager of ESR-Reit, other key benefits of the merger include: the creation of a sizeable and liquid industrial S-Reit, enlarged portfolio quality and scalability with the addition of properties, as well as the trust's growth being supported by a committed developer-sponsor, ESR - a pan-Asian logistics real estate platform.

Said executive director and CEO of the ESR-Reit manager, Adrian Chui: "Size does matter for Reits. This merger will be a milestone transaction that will create a portfolio that is stronger, more resilient and better-diversified. Leveraging our respective capabilities in operational and capital management, we will be in a strong position to deliver value to unitholders."

The merger is expected to be completed by the third quarter this year.

In order for the deal to go through, ESR-Reit will have to gain approval for the merger via an ordinary resolution with a majority vote, as well as an extraordinary resolution with 75 per cent or more of the votes casting in favour of issuing the new ESR-Reit units.

A "whitewash waiver" is also needed to waive the requirement for the Tong Group to make a mandatory general offer for ESR-Reit as a result of an increase in its unitholdings post-merger.

On VIT's end, approval for the scheme is required from more than 50 per cent in number of stapled securityholders voting either in person or by proxy at the scheme meeting representing not less than 75 per cent in the value of stapled securities among other conditions.

Upon the scheme becoming effective, VIT will be wholly-owned by ESR-Reit, and be delisted from the Singapore bourse, subject to approval from the Singapore Exchange.

VIT traded unchanged at $0.89 per unit on Thursday, while ESR-Reit closed down 1.87 per cent at $0.525 per unit. Trading in both counters were halted on Friday before the stock market opened.

Join ST's Telegram channel and get the latest breaking news delivered to you.