SINGAPORE (Dec 2): Frasers Logistics & Industrial Trust (FLT) and Frasers Commercial Trust (FCOT) are proposing to merge to create an enlarged REIT with a total portfolio worth a total of $5.7 billion, the respective managers announced on Monday.

The proposed merger will be by way of a trust scheme of arrangement, with FLT acquiring all units of FCOT in exchange for a combination of cash and new units in FLT.

The total consideration for the proposed merger is approximately $1.54 billion, comprising $138.1 million in cash and 1,128.1 million consideration units.

Unitholders of FCOT will receive $1.68 for each FCOT unit held at the books closure date. This will comprise 15.1 cents per unit in cash and 1.233 new FLT units at an issue price of $1.240 per unit, representing a gross exchange ratio of 1.355 times.

To illustrate, a FCOT unitholder will receive $151.00 in cash and 1,233 consideration units for every 1,000 FCOT units held.

The scheme consideration represents a 0.6% premium to FCOT’s last traded price of $1.67 on the last trading date of Nov 27.

It is also a 3.5% premium to FCOT’s 1-month volume weighted average price (VWAP) and a 8.2% premium to its 12-month VWAP.

In conjunction with the proposed merger, FLT announced the proposed acquisition of 50% interest in Farnborough Business Park (FBP) from a wholly-owned subsidiary of sponsor Frasers Property for an estimated consideration of £90.1 million ($157.7 million), subject to post-completion adjustments.

The remaining 50% interest in FBP is currently indirectly held by FCOT. Upon completion of the proposed asset acquisition, the enlarged REIT will hold 100% of the interest in FBP.

FBP is a 46.5 ha freehold high-quality business park located in the Thames Valley in the United Kingdom.

With a net lettable area of approximately 50,882 sqm, the business park has a high committed occupancy rate of 99.1% and long weighted average lease expiry (WALE) of 6.8 years as at Sept 30, 2019.

The proposed merger and the proposed asset acquisition will be DPU accretive on a pro forma basis for both FLT unitholders and FCOT unitholders by 2.2% and 4.2% respectively.

The enlarged REIT is expected to be one of the top 10 largest S-REITs by market capitalisation and will have greater index representation on the FTSE EPRA/NAREIT Index.

“The merger will be a win-win transaction for both FLT and FCOT unitholders, delivering DPU accretion and greater growth prospects,” says Robert Wallace, chief executive officer of FLT’s manager.

“It enhances our financial capacity and flexibility to pursue acquisitions through our expanded mandate and a ROFR (right of first refusal) pipeline in excess of $5.0 billion. We will be in an even stronger position to pursue growth and continue to deliver long-term value to our unitholders,” Wallace adds.

“This merger will be transformational for both REITs, allowing us to tap on each other’s strengths to create an even more resilient and diversified platform,” says Jack Lam, chief executive officer of FCOT’s manager.

“The transaction will be beneficial for FCOT Unitholders. In particular, they will benefit from a larger market capitalisation, FTSE EPRA/NAREIT Global Developed Index representation, a potentially wider investor base and higher trading liquidity,” Lam adds.

Following the completion of the proposed merger, sponsor Frasers Property and its related corporations are expected to hold approximately 21.9% of the total issued units in the enlarged REIT. The group currently holds approximately 19.6% interest in FLT and 25.9% interest in FCOT.

Merill Lynch (Singapore) is the sole financial adviser to the FLT manager and DBS Bank is the sole financial adviser to the FCOT manager in respect of the proposed merger and the trust scheme.

FLT and FCOT had called for trading halts before market open on Nov 28 ahead of the announcement.

Units in FLT and FCOT last closed at $1.24 and $1.67 respectively on Nov 27.