SINGAPORE (May 18): The respective managers of ESR-REIT and Viva Industrial Trust (VIT) have announced the details in the proposed merger to create the fourth largest industrial REIT in Singapore with approximately $3.0 billion in assets.

The proposed merger will be effected by way of a trust scheme of arrangement, which will see VIT stapled securityholders receive 96 cents per stapled security.

This gives VIT an implied equity value of approximately $936.7 million.

The scheme consideration will be satisfied 10% in cash and 90% through the issuance of new ESR-REIT Units, implying a gross exchange ratio of 1.778 times.

Based on the issue price of 54 cents 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.

The managers say the merger will enhance portfolio quality and scalability through operational economies of scale, risk diversification, exposure to the attractive business park segment, and better access to capital.

Following the completion of the merger, the number of properties in the enlarged trust’s portfolio will increase to 56, with a total gross floor area (GFA) of 13.6 million sq ft.

See: ESR-REIT announces merger plans with Viva Industrial Trust

“Size does matter for REITs,” says Adrian Chui, chief executive officer and executive director of the ESR-REIT manager. “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 enlarged trust will see its market capitalisation balloon to $1.7 billion, with its free float rising to $977 million.

The managers says this will result in higher trading liquidity, a larger investor base, and potential index inclusion.

They add that, backed by ESR Group, the enlarged trust will be well-positioned for growth and overseas expansion through a visible pipeline of quality assets and network across Asia.

“The merger will be transformational for both VIT and ESR-REIT as we build on each other’s strengths,” says Wilson Ang, chief executive officer and executive director of the VIT managers. “The combination of both ESR-REIT and VIT’s portfolios will increase our exposure to tenant profiles from the high-specs and general industrial sectors.”

“The Singapore government’s Industry 4.0 initiatives are expected to boost the attractiveness of these sectors in the near future, and the enlarged trust’s portfolio of assets will therefore place us in good stead for long-term growth,” he adds.

According to the managers, the transaction is value-accretive for VIT stapled securityholders and distribution per unit (DPU)-accretive for ESR-REIT unitholders on a historical pro forma basis.

“We are confident that this transaction will be positive for both the ESR-REIT unitholders and the VIT stapled securityholders,” Chui says. “In particular, the aggregation of the complementary and high-quality portfolios, combined expertise of both management teams, and the continued support and commitment of our sponsor, will position us for greater growth moving forward.”

See: Viva Industrial Trust to gain from potential merger with ESR-REIT: Maybank

The scheme will require, among others, approval from VIT stapled securityholders, and sanction of the scheme by the Singapore Court.

ESR-REIT will also be required to seek the approval of its unitholders at an extraordinary general meeting to be convened.

Unit of ESR-REIT last traded at 52.5 cents, while stapled securities of VIT last traded at 89 cents.

Both ESR-REIT and VIT had called for trading halts before market open on Friday.