By now there were a few blog posts written about this merger, so I will give my perspective as a Frasers Commercial Trust unitholder.
On 2 Dec 2019, Frasers Logistics & Industrial Trust (FLIT) had announced that it would merge with Frasers Commercial Trust (FCOT), with the new REIT to be subsumed under the FLIT banner. In this merger deal, FCOT holders will get 1.233 FLIT units plus SGD 0.151 in cash for each FCOT unit, which meant that for every 1,000 FCOT units, one would expect to have 1,233 FLIT units and SGD 151.00 in cash. The pricing was based on FLIT’s price of SGD 1.24 per unit and FCOT’s price of SGD 1.68 per unit, which were at or around the prices prior to their trading halt.
In addition, FLIT would be acquiring a 50% stake of Farnborough Business Park in the United Kingdom from its sponsor, Frasers Property Limited. The remaining 50% belonged to FCOT, so the whole property would eventually become 100% owned by FLIT.
The Bedokian’s Take
In a way, this merger had somewhat blurred the lines of REIT sectoral divisions. With this “enlarged REIT” (the actual term used in the announcements), we will have office, retail, business parks, logistics and industrial, a very diverse mix. In fact, some of the reasons provided for the merger included: to enhance diversification and resilience of the property portfolio, and to have a broadened investment mandate to invest in a wider spectrum of REITs sectors.
But first, let us look at the numbers.
Post-merger and proposed asset acquisition, the net asset value (NAV) of FLIT will be SGD 1.04 on a pro forma basis, gearing of 37% and a distribution-per-unit (DPU) accretive of +4.2% on a pro forma basis (from FCOT unitholder’s point of view). This meant that FCOT unitholders would get FLIT at a price-to-book (P/B) ratio of 1.19 (1.24/1.04), with a higher gearing (enlarged REIT of 37% > FCOT’s 28.6%) and almost the same dividend yield between 5.6% and 5.8% (assuming the pro forma figures stand and the prices remain as at the offer).
In return, FCOT unitholders will have additional logistics and industrial properties in Australia, plus exposure to Germany and Netherlands (from FCOT’s 6 to the enlarged REIT’s total of 98). Also, the weighted average lease expiry and occupancy will increase to 5.8 years (from 4.9 years) and 99.5% (from 95%) respectively.
So now begs the question: is it a good deal for FCOT unitholders, like me?
The answer is: it depends on how you view it.
In my opinion, this is a good starting or refresh point for FCOT unitholders to have a different perspective of their holdings. With the size of the enlarged REIT and given the number of properties the sponsor has around the world that could possibly be injected, the potential for growth and diversification (sectoral and geographical) is there. This I felt could be a justifying factor for getting FLIT at a higher P/B.
The big gripe that I have is the eventuality of getting odd lots (number of units/shares not rounded up to 100), though this is more of an administrative issue. With a ratio of 1:1.233, the minimum number of FCOT units to have in order to get the nearest 100 FLIT units would be 100,000 (100,000 x 1.233 = 123,300). Fortunately, you can transact units (or shares) of less than the lot size of 100, but it is advisable to contact your brokerage(s) about unit share or odd-lot market.
The merger is still subject to the approval of the unitholders of both FCOT and FLIT, which is expected to be in February or March 2020, so there is still time to ponder over it.
Bought FCOT at:
SGD 0.165, Aug 2009 (before 5 to 1 consolidation)
SGD 0.165, Sep 2009 (before 5 to 1 consolidation)
SGD 1.51, Apr 2015
SGD 1.255, May 2016
SGD 1.24, June 2016
SGD 1.26, Mar 2017
SGD 1.47, Mar 2019
Bedokian’s CPF Portfolio:
SGD 1.39, Feb 2018 (sold SGD 1.72, Dec 2019)
SGD 1.37, Jun 2018 (sold SGD 1.72, Dec 2019)
Frasers Logistics and Industrial Trust. Proposed Merger with Frasers Commercial Trust and Proposed Acquisition of the Remaining 50% Interest in Farnborough Business Park. 2 Dec 2019. https://flt.frasersproperty.com/newsroom/20191202_073027_NULL_PONX74KUPADGK387.4.pdf (accessed 6 Dec 2019)
Frasers Commercial Trust. Proposed Merger with Frasers Logistics & Industrial Trust. 2 Dec 2019. https://fcot.frasersproperty.com/newsroom/20191202_073544_ND8U_RIRP7SYNJ4WUH2WN.3.pdf (accessed 6 Dec 2019)