"The yet-to-be exercised convertible perpetual preferred units held by the sponsor and potential injection of OUE Bayfront Oakwood serviced residences - which at this point is unlikely to be accretive - remains an overhang which the merger has not fully resolved," DBS Group Research analysts Mervin Song, Carmen Tay and Derek Tan wrote.
The proposed merger is the second instance of M&A among S-Reits in recent months following ESR-Reit and Viva Industrial Trust's merger, and the third since 2015 when US private equity firm Lone Star Funds scooped up Saizen Reit's assets for 44.66 billion yen. . Morgan Stanley analysts Wilson Ng and Samuel Ong pointed out that Reit mergers can benefit both Reits and their sponsors, since Reits are typically"rewarded" in the market for size and liquidity. They also noted that sponsors that manage and/or own substantial Reit stakes can also benefit from higher fee income, lower operational costs and greater flexibility to divest property to their Reits.
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