Frasers Logistics, Frasers Commercial to merge in $1.54b deal as Reit consolidation spree continues

The Bosch Facility in Tamm is one of nine freehold German properties to be acquired by Frasers Logistics & Industrial Trust.
The Bosch Facility in Tamm is one of nine freehold German properties to be acquired by Frasers Logistics & Industrial Trust.PHOTO: FRASER LOGISTICS AND INDUSTRIAL TRUST

SINGAPORE (BLOOMBERG) - Frasers Logistics & Industrial Trust has agreed to buy Frasers Commercial Trust in a $1.54 billion deal, giving it greater ammunition to make acquisitions amid a spate of consolidation among Singapore's real estate investment trusts (Reits).

Combined, the group will have about $5.7 billion of assets from 98 properties totaling 2.6 million square metres of space across Singapore, Australia and Europe, including warehouses, offices and business parks. 

The merged Reit's market value will almost double to about $4.2 billion, propelling it No 9 among Singapore's top 10 Reits, according to a joint statement on Monday (Dec 2).

The merger is at the least the fourth such tie-up among Singapore-listed Reits this year. Benefits include the ability to consolidate management expertise and build a bigger war chest for acquisitions.

"The enlarged Reit will have a broadened investment mandate to invest in a wider spectrum of asset classes across logistics, industrial, office, business park and commercial properties," the two parties said in the statement.

A combined Frasers Logistics and Frasers Commercial would also likely have an improved cost of capital, enabling it to compete more effectively on a global stage, said CGS-CIMB Securities analyst Lock Mun Yee, who rates both Reits a buy.

The action kicked off in January when CapitaLand struck a $6 billion deal with Temasek Holdings to combine Ascendas and Singbridge. OUE Commercial Reit in April agreed to buy OUE Hospitality Trust. And in July, Ascott Residence Trust and Ascendas Hospitality Trust agreed to create the largest hospitality trust in the Asia-Pacific region, with $7.6 billion of assets comprising serviced residences and hotels.

 

Activist investors are pushing for even more consolidation. Quarz Capital Management last month released an open letter saying that Sabana Shari'ah Compliant Industrial Reit and ESR-Reit should merge to solve the issue of overlapping investment mandates between the two trusts.

Frasers Property, backed by Thailand's TCC Assets, is the main sponsor for both Reits. TCC Assets is part of TCC Group, one of Thailand's biggest conglomerates, which was founded by the country's richest man Charoen Sirivadhanabhakdi.

"What I would like to emphasize is that industrial remains very much an important market," Frasers Logistics chief executive officer Robert Wallace said at a media briefing on Monday. “We know that market well, we perform well in it.”

Logistics and industrial property will comprise about 60 per cent of the combined firm’s portfolio, followed by commercial, office space and business parks.

Frasers Logistics, the bigger partner, has 92 properties valued at $3.3 billion: 62 in Australia, 25 in Germany and five in the Netherlands. Frasers Commercial will bring its six properties worth $2.2 billion, two of which are in Singapore, China Square Central and Alexandra Technopark.

The proposed  merger is subject to approval from existing investors and the High Court. If it goes through, Frasers Commercial will be delisted from the Singapore Exchange. 

Both Reits were halted from trading last week pending the announcement. Trading resumed after the midday break on Monday, with Frasers Commercial units jumping 3 per cent or five cents to $1.72 as of 2:40pm, while Frasers Logistics units were 3.2 per cent or four cents to $1.28.  To date this year, Frasers Commercial has risen 22.7 per cent, while Frasers Logistics are up 20.6 per cent.

Under the proposed merger, unitholders of Frasers Commercial will receive $1.680 for each unit they hold, in the form of $0.151 in cash and 1.233 new Frasers Logistics units at an issue price of $1.240 per unit.

After the merger, the Frasers Property group will hold about 21.9 per cent of the enlarged Reit. Now, it owns about 19.6 per cent of Frasers Logistics and 25.9 per cent of Frasers Commercial.

The enlarged Reit also plans to hold a 100 per cent of Farnborough Business Park in the UK, with Frasers Commercial already owning a half interest. It will buy the remaining 50 per cent stake in the property for £90.1 million (S$157.7 million)  from Frasers Property, with the acquisition  conditional on the proposed merger being approved and completed. 

The 46.5 hectare freehold business park is located in the Thames Valley, with direct connections to key motorways and a direct train service to Waterloo Station in London. It has a net lettable area of about 50,882 square metres, a committed occupancy rate of 99.1 per cent and weighted average lease expiry of 6.8 years as at Sept 30.

With additional information from The Straits Times