OUE Commercial Real Estate Investment Trust (OUE C-Reit) and OUE Hospitality Trust (OUE H-Trust) are proposing to merge in a cash and stock deal that will create one of Singapore's largest Reits with total assets of about $6.8 billion.
The proposed OUE merger is the latest major consolidation among Singapore-listed property trusts. Last October, ESR-Reit and Viva Industrial Trust completed their merger into a combined entity with assets of about $3 billion at the time.
The latest merger will be effected through a trust scheme of arrangement. OUE C-Reit will acquire OUE H-Trust by paying OUE H-Trust holders, for every OUE H-Trust stapled security held, $0.04075 in cash plus 1.3583 new OUE C-Reit units.
This translates to a deal valuation of $1.49 billion total, with $74.6 million in cash and the rest paid by the issue of about 2.5 billion new OUE C-Reit units to OUE H-Trust holders at $0.57 per OUE C-Reit unit.
The $0.57 valuation for the new OUE C-Reit units matches the theoretical ex-rights price of the Reit's recent 83-for-100 rights issue to help pay for the office components of OUE Downtown. Along with an estimated $8.3 million acquisition fee and a further $15.7 million for "professional and other fees", OUE C-Reit expects to shell out a total of $1.5 billion to acquire OUE H-Trust.
OUE C-Reit last traded at $0.52 for a market capitalisation of $1.49 billion on Friday, while OUE H-Trust closed at $0.735 for a market valuation of $1.34 billion.
Parent company OUE Group will continue to retain a 48.3 per cent in the enlarged Reit. OUE shares closed at $1.77 on Friday.
The merged entity will be one of Singapore's largest Reits by assets. It will have seven properties under its umbrella: four are from OUE C-Reit - OUE Bayfront, One Raffles Place, OUE Downtown Office and Lippo Plaza; and three from OUE H-Trust - Mandarin Orchard Singapore, Mandarin Gallery and Crowne Plaza Changi Airport.
The enlarged Reit will also have a funding capacity of about $1 billion, and will provide "enhanced portfolio diversification and resilience", the managers said in a media statement.
If the deal had been completed at the end of last year, OUE C-Reit's distribution per unit would have increased by 2.1 per cent on a proforma basis, while OUE H-Trust's distribution per stapled security would have increased by 1.4 per cent.
OUE H-Trust will delist from the Singapore Exchange upon approval of the merger, becoming wholly owned by the OUE C-Reit trustee.
No leadership team has been announced for the merged entity, but the deal is expected to complete this August.
OUE C-Reit and OUE H-Trust will need to seek approval from their unit holders and stapled security holders for the merger. The trust scheme also needs to be sanctioned by the Singapore court.
Citigroup, Credit Suisse and OCBC are the financial advisers to OUE C-Reit's manager, while BofA Merrill Lynch is sole adviser to OUE H-Trust's managers for the proposed merger and the trust scheme.
OUE C-Reit, OUE H-Trust and parent company OUE Limited all called for trading halts yesterday morning before the announcements.