SINGAPORE, 2 DECEMBER 2019
The respective Managers of Frasers Logistics & Industrial Trust ("FLT”) and Frasers Commercial Trust (“FCOT”) today jointly announced the proposed merger of FLT and FCOT (the “Proposed Merger”). 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 Frasers Property Limited (“FPL” or the “Sponsor”) for an estimated consideration of £90.1 million (approximately S$157.7 million), subject to post-completion adjustments (the “Proposed Asset Acquisition”). 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 (the “Enlarged REIT”).
The Enlarged REIT will hold a diversified portfolio of logistics, industrial, office, business park and commercial assets worth approximately S$5.7 billion across Asia Pacific, Europe and the United Kingdom. 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.
Mr. Robert Wallace, Chief Executive Officer of FLT’s Manager, said, “The merger will be a win-win transaction for both FLT and FCOT Unitholders, delivering DPU accretion and greater growth prospects. The Enlarged REIT will provide synergistic end-to-end business solutions for a wider customer base. It enhances our financial capacity and flexibility to pursue acquisitions through our expanded mandate and a ROFR pipeline in excess of S$5.0 billion. We will be in an even stronger position to pursue growth and continue to deliver long-term value to our Unitholders.”
Mr. Jack Lam, Chief Executive Officer of FCOT’s Manager, said, “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. With the combined portfolio, we will be able to unlock synergies and explore new opportunities in the logistics, industrial and commercial sectors. 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.”
DETAILS OF PROPOSED MERGER
The Proposed Merger will be by way of a trust scheme of arrangement (the “Trust Scheme”), with FLT acquiring all units of FCOT in exchange for a combination of cash and new units in FLT.
Unitholders of FCOT will receive S$1.680 (the “Scheme Consideration”) for each FCOT Unit held by FCOT Unitholders as at the Books Closure Date6, which shall be satisfied by:
This implies a 1.355 times gross exchange ratio. By way of illustration, if the Trust Scheme becomes effective in accordance with its terms, a FCOT Unitholder will receive S$151.00 in cash and 1,233 Consideration Units for every 1,000 FCOT units held by it as at the Books Closure Date.
In addition, the Scheme Consideration represents a premium to FCOT’s historical trading prices of approximately 0.6%, 3.5% and 8.2% to FCOT’s Last Traded Price8, 1-month VWAP and 12-month VWAP, respectively.
The total consideration for the Proposed Merger is approximately S$1,537.0 million as at the Announcement Date, comprising S$138.1 million in cash and 1,128.1 million Consideration Units.
Following the completion of the Proposed Merger, the Sponsor and its related corporations (the “Sponsor Group”) are expected to hold approximately 21.9% of the total issued units in the Enlarged REIT. As at the Announcement Date, the Sponsor Group holds approximately 19.6% interest in FLT and 25.9% interest in FCOT.
PROPOSED ACQUISITION OF FARNBOROUGH BUSINESS PARK
Conditional upon, amongst others, the completion of the Proposed Merger and the approval of the FLT Unitholders, the acquisition of the 50% interest in FBP for £90.1 million (approximately S$157.7 million) is expected to be DPU-accretive.
FBP is a 46.5 hectares freehold high-quality business park located in the Thames Valley in the United Kingdom. FBP is strategically located with excellent connectivity, including direct connections to key motorways and direct train service to Waterloo Station, London. Furthermore, FBP is approximately 1.6 km to Farnborough Town Centre, adjacent to the TAG Farnborough Airport and Farnborough International Exhibition & Conference Centre, and approximately 40 km away from London’s Heathrow Airport.
With a net lettable area of approximately 50,882 sqm, the business park has a high committed occupancy rate of 99.1%9 and long weighted average lease expiry (“WALE”) of 6.8 years as at 30 September 2019.
RATIONALE FOR THE PROPOSED MERGER
Key rationale of the Proposed Merger are as outlined below.
1. DPU Accretive
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%10 and 4.2%11 respectively.
2. Flagship Portfolio of Commercial and Industrial Assets
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. With a larger platform, the Enlarged REIT will manage approximately 2.6 million sqm of space with approximately 300 tenants in 98 properties spread across five countries.
The Enlarged REIT will also be able to provide a wide suite of product offerings catering to the end-to-end needs of a wider customer base. This enables the Enlarged REIT to create an entrenched network of tenants across its ecosystem and access income streams across the economic value chain.
3. Creation of a Top-10 S-REIT with Index Inclusion
The Enlarged REIT is expected to become a top-10 S-REIT by market capitalisation, with an increased market capitalisation of approximately S$4.2 billion12 and larger free float of approximately S$3.0 billion13. This is expected to result in an improvement in the Enlarged REIT’s weightage within the FTSE EPRA/NAREIT Index.
Consequently, the Enlarged REIT may potentially enjoy higher trading liquidity, attract a wider investor base and achieve broader analyst coverage, which could lead to a positive re-rating of the Enlarged REIT.
4. Enhance Diversification and Portfolio Resilience
The Enlarged REIT’s exposure to any single asset and geography will not be more than 12% and 50% by value respectively. Tenant diversification will also be enhanced due to the enlarged tenant base of approximately 300 tenants from a wide array of industries. No single tenant will contribute more than 6% of pro forma gross rental income (“GRI”), and the top ten tenants’ contribution to GRI will also be reduced from 51.6% (based on FCOT portfolio) to 24.0%14 based on the Enlarged REIT’s portfolio on a pro forma basis.
The Enlarged REIT will have a WALE of 5.8 years15 and will enjoy organic growth via escalation in underlying lease rates. The Enlarged REIT will also have greater income stability and cash flow visibility, with 58.9% of leases expiring after 30 September 2023.
5. Growth Trajectory from Enlarged Capital Base and ROFR Pipeline
The Enlarged REIT is expected to benefit from an increased capital base and debt headroom, providing the Enlarged REIT greater capacity to pursue investment opportunities with enhanced flexibility and agility. Debt headroom of the Enlarged REIT is expected to be approximately S$0.9 billion. The Enlarged REIT will also be able to undertake asset enhancement initiatives and development projects on a larger scale.
The Enlarged REIT will continue to leverage on the Sponsor’s integrated development and asset management platform for growth. It will have access to a sizeable ROFR pipeline of more than S$5.0 billion, which will allow the Enlarged REIT to pursue future growth.
The Trust Scheme will require, amongst others, FCOT Unitholders’ approval of FCOT’s Trust Deed Amendments and the Trust Scheme at the meetings to be convened. In addition, the Trust Scheme will require the sanction of the Singapore High Court. FLT and persons acting in concert with it will abstain from voting on the Trust Scheme.
FLT will be required to seek the approval of FLT Unitholders at an extraordinary general meeting to be convened for the Proposed Merger, the issue of the Consideration Units, and the Proposed Asset Acquisition. FPL and its associates will abstain from voting on FLT’s resolutions pertaining to the Proposed Merger and the Proposed Asset Acquisition.
Merill Lynch (Singapore) Pte. Ltd. (“BofA Securities”) is the sole financial adviser to the FLT Manager in respect of the Proposed Merger and the Trust Scheme.
DBS Bank Ltd. is the sole financial adviser to the FCOT Manager in respect of the Proposed Merger and the Trust Scheme.
Further information on the Proposed Merger can be found in the joint announcement, FLT’s acquisition announcement, as well as both FLT’s and FCOT’s investor presentations, which can be downloaded from SGXNET or from FLT’s and FCOT’s respective websites.
1 “Distribution per unit”.
2 Portfolio value of the Enlarged REIT as at 30 September 2019 includes 100% interest in FBP, which is based on the Agreed Property Value at an exchange rate of £1 : S$1.6984.
3 “Right of first refusal”.
4 Units in FCOT, with the unitholders of FCOT referred to as the “FCOT Unitholders”.
5 “Volume weighted average price”.
6 “Books Closure Date” means the date to be announced (before the Effective Date of the Trust Scheme) by the FCOT Manager on which the Transfer Books and the Register of FCOT Unitholders of FCOT will be closed in order to determine the entitlements of the FCOT Unitholders in respect of the Trust Scheme.
7 Units in FLT, with the unitholders of FLT referred to as the “FLT Unitholders”.
8 The last traded price per FCOT Unit on 27 November 2019 (the “Last Trading Date”).
9 As at 30 September 2019, inclusive of a new lease concluded in October 2019.
10 See Paragraph 7.1.1 in the Acquisition Announcement for details of the pro forma financial effects of the Proposed Merger and the Proposed Asset Acquisition on the amount available for distribution to FLT Unitholders and FLT’s DPU for FY2019.
11 Please refer to footnote 2 on page 8, and footnote 3 on page 9, in the Joint Announcement for the pro forma calculations.
12 Illustrative market capitalisation of the Enlarged REIT calculated as (i) the sum of (a) the number of FLT Units outstanding as at the Last Trading Date; (b) the number of FLT Units to be issued to satisfy the portion of Scheme Consideration in FLT Units; (c) the number of FLT Units to be issued as consideration for the acquisition fee for the Proposed Merger; and (d) the number of FLT Units to be issued as consideration for the acquisition fee for the Proposed Asset Acquisition, and (ii) multiplied by the issue price of S$1.240 per FLT Unit.
13 Based on information available to the FLT Manager and the FCOT Manager as at the Last Trading Date. Excludes the stakes held by the Sponsor, the FLT Manager, the FCOT Manager, directors of the FLT Manager and the FCOT Manager, substantial FLT Unitholders and substantial FCOT Unitholders and their respective associates.
14 Based on GRI as at 30 September 2019 (excluding vacancy, committed leases, lease incentives and retail turnover rents, if any).
15 Based on GRI as at 30 September 2019 (including committed leases and excluding vacancy, lease incentives and retail turnover rents, if any).