On Mar 4, Institutional Shareholder Services is recommending that unitholders of ARA LOGOS Logistics Trust to vote in favour of resolutions put forward in the trust scheme. These resolutions are to vote for a change in the trust deed, and secondly to vote for the scheme, that is to merge with ESR-REIT.
Karen Lee, CEO of ALOG’s manager says that the proposed transaction is not a sale process of ALOG or its assets. “ALOG Unitholders are not selling out their units, but instead rolling over into an enlarged platform with a strong sponsor, while crystalising part of their investment returns in cash. The enlarged platform with access to the sponsor’s new economy pipeline will create unparalleled and long term sustainable value for our unitholders,” she has said on a number of occasions.
Lee adds that since the proposed merger was announced in October last year and no other offer has emerged. ALOG’s manager is required to consider any offer that comes along after the ESR-REIT offer. The ESR-REIT offer is a result of the merger between ESR Cayman and ARA Asset Management. ARA had a controlling stake in LOGOS, ALOG’s sponsor. Hence ESR inherited LOGOS and now indirectly owns ALOG’s manager and around an 11% stake in ALOG.
To resolve the conflict of interest since both REITs have overlapping mandates, ESR-REIT’s manager made an offer for ALOG. ALOG owns only logistics assets whereas ESR-REIT has a wider remit, and holds other new economy assets including life science, data centres, cold storage and high-tech buildings as well as logistics properties.
ESR Cayman is providing the merged entity, ESR LOGOS REIT (E-LOG) with an immediate $2 billion pipeline of mainly logistics assets, and the financial support to acquire the assets.
“Overall, the proposed merger remains to be concerning given that the deal will be made with a related party without considering alternative transactions and that the transaction does not represent an attractive premium when considering the improvement in ALOG's valuation over the past year,” ISS says. This is a strange statement given that the proposed merger and terms have been out in the public domain for all these months.
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As an example, Singapore Press Holdings got a better offer in all cash from Cuscaden Peak, a consortium comprising Hotel Properties, Mapletree and the parent of CapitaLand Investment, which topped the offer from Keppel Corp. In 2021, SPH had a strategic review where it shopped for buyers. ALOG did not have a strategic review. The merger is because of developments at the sponsors’ level for which the best path is a merger between its two REITs with overlapping mandates.
Hence ISS adds: “Nonetheless, given that the revised scheme consideration is at least closely in line with ALOG's valuation, and taking into consideration the potential strategic benefits of having an enlarged REIT for ALOG unitholders, a cautionary vote FOR this resolution is warranted.”
On Jan 22, following a recommendation to ALOG unitholders to vote against the trust scheme because the pricing was not fair, ESR-REIT’s manager revised the pricing. The cash portfion has been revised to $0.097 in cash from $0.095 per ALOG Unit. For the units portion, the price has been revised to 1.7729 new ESR-REIT Units from 1.6765 new ESR-REIT Units for each ALOG Unit, issued at $0.4924.
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The scheme meeting will be held on March 21.
The largest institutional unitholders are The Vanguard Group, BlackRock Fund Advisors, Dimensional Fund Advisors, Norges Bank Investment Management, La Salle Investment Management Securities and UB Asset Management.
