Mapletree Investments is proposing to merge Mapletree Commercial Trust (MCT) and Mapletree North Asia Commercial Trust (MNACT) in a S$4.22 billion ($3.13 billion) deal which would create Asia’s seventh-largest REIT.
If shareholders approve, the merger would establish Mapletree Pan Asia Commercial Trust (MPACT) as the third biggest Singapore-listed REIT, with S$17.1 billion in total assets under management across Singapore, China, Hong Kong SAR, Japan and South Korea.
The managers, which are both units of Temasek Holdings-owned Mapletree Investments, in a joint announcement on Friday said the plan will serve as a “launchpad” for the merged entity to expand further in Asia while ensuring it has a more stable financial footing and a diversified portfolio. The companies also said that the supersized trust would gain more traction on key stock indices and potentially generate greater investor interest.
Mapletree’s move comes a year after CapitaLand proposed a merger which set up Singapore’s largest REIT with the combination of CapitaLand Commercial Trust and CapitaLand Mall Trust into CapitaLand Integrated Commercial Trust. In a deal completed in April of 2020, another Singapore rival, Frasers Property had completed a merger of a pair of its SGX-listed trusts in a $4.2 billion deal.
MNACT Suddenly in Demand
Under the proposal, the manager of Mapletree Commercial Trust (MCT), which currently holds a set of six Singapore commercial properties including five office assets and the VivoCity shopping mall, is offering shareholders in MNACT the equivalent of S$1.1949 in either cash or a combination of cash and scrip, for each unit in the target trust.
Units in MNACT jumped by 9.52 percent today to end Monday at S$1.15 per share after closing at S$1.11 each on 27 December. During all of September, shares in the trust, which holds nine office properties in Japan, two in China, and one in Korea, in addition to the Festival Walk mall in Hong Kong, had traded below S$1.00 each throughout the month.
MNACT owners can choose to accept their consideration either in cash or through a combination of cash and newly issued units in MCT valued at S$2.0039 each at the equivalent of 0.5963 units in MCT for each MNACT unit.
The total consideration for the offer amounts to S$4.2 billion, including S$417 million in cash, with the remainder to come in the form of new units in MCT.
Following the merger, Mapletree expects Mapletree Pan Asia Commercial Trust to have a market capitalisation of approximately S$10.5 billion, which would rank it behind a pair of Capitaland-managed REITs, namely CapitaLand Integrated Commercial Trust (CICT) which has a market cap of S$13.55 billion, and Ascendas REIT which is close behind with S$12.38 billion.
Sharon Lim, chief executive of MCT’s manager, called the proposal a “win-win” for unit holders in the two trusts, since it would potentially add to both the distributions per unit and the net asset value for MCT, while allowing MNACT owners to sell their shares at a premium of 7.6 percent over their closing price on 27 December.
Cindy Chow, CEO of MNACT’s manager, pointed to the potential for the enlarged trust to attract a broader investor base through its larger market capitalisation, increased representation in key indices and improved financial standing, including greater debt headroom for making future acquisitions.
The proposal is set to be voted on in a set of parallel extraordinary general meetings scheduled for mid-April, with the managers needing to win approval from holders of at least three-fourths of MNACT’s units and of not less than half of the units in MCT to move forward with the deal, as well as being required to obtain regulatory approvals.
Should those hurdles be overcome, the transaction would be expected to be completed during the second half of 2022 or early 2023, with MNACT then to be delisted from the Singapore Exchange in mid-June.
Buying a Money-Loser
While Mapletree pushes its REIT merger as having upside for all, the proposal has received mixed reviews from analysts who see MNACT’s performance as having lagged behind its Singapore-focused cousin.
In a note to investors OCBC Investment Research nodded to the potential advantages of a larger REIT, while pointing out that MCT unit holders may now face greater risk via the enlarged REIT’s broader geographic base, while trading equity in a profitable REIT for ownership of a money-loser.
“While we are not overly excited about this proposed merger from MCT’s perspective, given its new exposure to riskier markets such as China and Hong Kong and dilution of its pure-play Singapore status, we acknowledge the importance of scale in the REITs industry and the strategic benefits the enlarged REIT brings, as highlighted above,” the bank’s research team said.
Based on data cited in the document, MCT achieved a 14.41 percent net income margin in the 12 months ending September while MNACT, reported a negative net profit margin at 67.9 percent in the same period after reporting a net loss of S$265.8 million from its S$8.3 billion portfolio.
In addition to the VivoCity mall, MCT’s S$8.84 billion portfolio includes Mapletree Business City, mTower, 19-storey Mapletree Anson and the six-storey Bank of America Merrill Lynch HarbourFront office block
S-REITs Fight For Scale
Following the proposed consolidation, MPACT’s combined portfolio would consist of 18 assets with a total net lettable area of 11 million square feet (1.02 million metres) across Asia, including nine in Japan, five in Singapore, two in China and one each in Hong Kong and South Korea.
Comprising mainly retail and downtown office buildings with some business parks, the portfolio is now 97 percent occupied by top tenants including Google, BMW, Seiko and HP Japan.
DBS Bank Ltd acted as the sole financial advisor for MCT’s manager while HSBC Holdings Plc represented MNACT’s.
Last year, CapitaLand successfully merged CapitaLand Commercial Trust (CCT) and CapitaLand Mall Trust (CMT) in a S$8.27 billion (then $6.13 billion) deal to form CapitaLand Integrated Commercial Trust, which started trading in November 2020.
CapitaLand’s mega-merger went live on the SGX less than a year after Frasers Logistics & Industrial Trust merged with Frasers Commercial Trust to form Frasers Logistics and Commercial Trust.