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Business deals

Two Singapore REITs to merge as players chase scale

Frasers Logistics, Frasers Commercial will hold 98 properties worth $4.2bn

Singapore, Asia's largest market for property trusts outside Japan, has seen a slew of property-related mergers and acquisitions this year as REIT managers take advantage of strong investor demand for relatively high-yielding securities and low interest rates to acquire assets.   © Reuters

SINGAPORE (Nikkei Markets) -- Two more Singapore-listed real estate investment trusts are planning to merge as existing industry players consolidate or buy new assets in efforts to raise their profiles and attract more investors.

The combination of Frasers Logistics & Industrial Trust and Frasers Commercial Trust will form a REIT with some S$5.7 billion ($4.2 billion) in assets.

The enlarged REIT, with a market capitalization of approximately S$4.2 billion, will be among the 10 biggest in Singapore. Its portfolio of 98 properties will include logistics, industrial, office, business park and commercial real estate in Australia, Singapore, Germany, the U.K. and the Netherlands.

Jack Lam, CEO of Frasers Commercial, said in a media presentation that the greater representation the combined REIT will enjoy on the widely followed FTSE EPRA Nareit Global Real Estate Index will likely result in a "wider investor base and higher trading liquidity."

In a statement, the two REITs said the broader analyst coverage after the merger could lead to a positive rerating.

Both are managed by Frasers Property, part of Thailand's TCC Group, a sprawling conglomerate controlled by billionaire businessman Charoen Sirivadhanabhakdi.

Singapore, Asia's largest market for property trusts outside of Japan, has seen a slew of property-related mergers and acquisitions this year as REIT managers take advantage of strong investor demand for relatively high-yielding securities and low interest rates to acquire new assets.

In September, OUE Commercial REIT completed its purchase of sister REIT OUE Hospitality Trust to have S$6.9 billion worth of properties in total. Meanwhile, Ascott Residence Trust and Ascendas Hospitality Trust, both managed by property giant CapitaLand, are in the process of merging to create a hotel and serviced residences giant with S$7.6 billion in global assets.

On the acquisitions front, Ascendas Real Estate Investment Trust plans to buy a portfolio of 30 business parks from CapitaLand for S$1.66 billion. Ascendas is already Singapore's largest REIT with a market capitalization of S$9.5 billion and the proposed purchase will see it diversify into the U.S. from its current markets of Singapore, Australia and the U.K.

Other large equity fundraisings in process include Mapletree Commercial Trust's placement and preferential offering to existing shareholders to raise over S$900 million.

According to a report by the Singapore Exchange last week, REITs in the city-state have generated average total returns of 22% since the start of the year as investors flocked to safer investments with more predictable cash flows. REITs, which pay out regular distributions from the rents they receive, provide greater certainty as rents are typically fixed over a period of several years.

Under the proposed merger of Frasers Logistics with Frasers Commercial, the former will acquire all units of the latter. Frasers Commercial unit holders will receive S$0.151 in cash and 1.233 new Frasers Logistics units, valuing the former at S$1.680 per unit and the latter at S$1.240. Prices of both REITs were higher when they resumed trade after the news was announced. Frasers Commercial was up 3% at S$1.72 in early afternoon trade Monday while Frasers Logistics was up 2.4% at S$1.27.

Frasers Logistics also plans to buy an additional 50% interest in Farnborough Business Park near London from Frasers Property for around 90.1 million pounds ($116.4 million). Frasers Commercial owns the other half of the park, which comprises 14 commercial buildings.

Besides Frasers Logistics and Frasers Commercial, Frasers Property also manages two other Singapore-listed REITs -- Frasers Centrepoint Trust, which owns six shopping malls in the city-state, and Frasers Hospitality Trust, which has hotels and serviced residences in Europe, Australia and Singapore.

--Kevin Lim

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