Hot stocks: MCT down 3%, MNACT rises as much as 3.6% on proposed merger

MAPLETREE Commercial Trust's (MCT) N2IU units plunged to a near 14-month low, while Mapletree North Asia Commercial Trust (MNACT) RW0U reached a 21-month high on Monday (Jan 3).

On Friday, their managers proposed a merger of both real estate investment trusts (Reits), a move expected to propel the combined entity to become one of Asia's largest Reits.

MNACT reached a high of S$1.15 at 9.29 am on Monday, up 3.6 per cent or S$0.04. The last time the counter closed near this level was Mar 5, 2020.

By 9.46 am, the North Asia-focused Reit was the third most traded by volume on the Singapore bourse with 22.4 million shares changing hands. The units were up S$0.03 or 2.7 per cent to S$1.14 by then.

MCT tumbled to a low of S$1.94 as at 9.46 am on Monday, down 3 per cent or S$0.06. The last time the counter closed near this level was Nov 9, 2020.

It was the seventh most traded by volume on the Singapore bourse by 9.46 am on Monday with 6.5 million shares changing hands. The units were up 2 per cent or S$0.04 by then.

No married deals were recorded, according to ShareInvestor data.

MCT and MNACT had resumed trading on Monday after the announcement, 4 days after its managers called for a trading halt on Dec 28.

Last Friday, the managers of MCT and MNACT announced that the merged entity - to be named Mapletree Pan Asia Commercial Trust (MPACT), will have a theoretical market capitalisation of approximately S$10.5 billion.

With the merger, the combined entity will rank within the top 3 Reits listed in Singapore, behind CapitaLand Integrated Commercial Trust and Ascendas Reit.

For MCT unitholders, the merger will be 8.9 per cent accretive to distribution per unit (DPU) and 6.5 per cent accretive to net asset value on a pro forma basis.

Meanwhile, the scheme consideration price represents a 7.6 per cent premium to MNACT's trading price on Dec 27 and a 17.3 per cent premium to its 12-month volume-weighted average price.

The Reit managers said this translates to a 1-year total return of 32.2 per cent to MNACT unitholders.

Following the announcement, Maybank Kim Eng maintained "buy" on MCT, saying that it sees "strategic merits from an increased assets under management (AUM) diversification, stronger DPU growth and potentially lower cost of capital".

Both CGS-CIMB and UOB Kay Hian (UOBKH) analysts said MCT unitholders can expect to benefit significantly from immediate DPU and NAV accretion.

UOBKH's Jonathan Koh said they can expect to benefit from accretion to pro forma H1 FY2022 DPU by 7.5 per cent to 8.9 per cent. NAV per unit as at Sep 21 is also expected to increase 6.5 per cent to 8.9 per cent.

"We see benefits from an enlarged AUM, as MCT has lagged peers in driving inorganic growth due to its Singapore-focused investment mandate and limited sponsor pipeline," said analyst Chua Su Tye, adding that diversification across core Asian markets should add stability and reduce concentration risk by assets and tenancies.

"A merger could lift MCT's free float by 1.5 times and raise its MSCI Singapore index weighting from 1.6 per cent to 2.4 per cent, leading to increased investor attention and potentially an improved cost of capital."

Still, Chua noted that some investors may view the dilution negatively, and therefore "execution will remain key, and management of the new Reit will need to prove it can deliver on an expanded growth mandate".

CGS-CIMB analysts believe that the benefits of the merger would only be felt in the longer run, when the enlarged entity delivers accelerated growth prospects.

On this note, OCBC Investment Research said it is not "overly excited" about the merger from MCT's perspective as it exposes the Reit to riskier markets such as China and Hong Kong.

Nevertheless, the analysts acknowledged the importance of scale in the Reits industry and the strategic benefits the enlarged entity would bring and recommended for unitholders to vote in favour of the proposed merger on pro forma DPU accretion.

DBS had said in a sector note in December that it believes mixed commercial S-Reits will offer stronger growth in the new year, propelled by the reopening of the economy and return-to-office recovery.

MCT was among the research team's top picks in the sector, as according to DBS estimates, it is among the Reits that offer the strongest DPU growth compared to peers for FY2022.

READ MORE

• Mapletree merger not win-win for MCT unitholders
• Brokers' take: Mixed commercial S-Reits to offer stronger growth in FY2022, DBS says
• Mapletree Commercial Trust's H1 DPU rises 5.3% as property income climbs by 10.7%
• Mapletree North Asia Commercial Trust's H1 DPU up 19.1%
• Mapletree Commercial Trust, Mapletree North Asia Commercial Trust propose merger