Mapletree Commercial Trust, Mapletree North Asia Commercial Trust propose merger

THE managers of Mapletree Commercial Trust (MCT) and Mapletree North Asia Commercial Trust (MNACT) have proposed a merger that will propel the combined entity to become one of Asia’s 10 largest real estate investment trusts (Reits).

“The enlarged platform will also be better positioned to unlock upside potential,” said Sharon Lim, chief executive officer of MCT’s manager, at a briefing on Friday (Dec 31). “We are very convinced with the merits of this merger… It’s truly putting strength and growth into a single vehicle.”

The merged entity, to be named Mapletree Pan Asia Commercial Trust (MPACT), will have a theoretical market capitalisation of approximately S$10.5 billion.

This will rank the enlarged platform within the top 3 Reits listed in Singapore, behind CapitaLand Integrated Commercial Trust (CICT) and Ascendas Reit.

The combined portfolio will comprise 18 commercial assets across Singapore, China, Hong Kong, Japan and South Korea, with assets under management (AUM) of approximately S$17.1 billion.

Lim said that while Singapore properties have been very stable and given good returns over the years, there have been questions on the Reit’s ability to grow in the longer term.

“Organically in Singapore, in our assets, we still do see things that we can do. But if we look at really meaningful, long term expansion, we'd have to grow inorganically. We are proposing this merger to set ourselves up to be in a better place to take on new opportunities overseas,” she said.

The merger will dilute MCT’s 100 per cent concentration in Singapore to just over half of the enlarged portfolio. Hong Kong will account for 26 per cent of the merged entity’s portfolio, with China at 11 per cent, Japan at 10 per cent and South Korea at 2 per cent.

The investment mandate for the enlarged Reit will also be expanded geographically to include other key Asian gateway markets.

However, the Reit manager said the enlarged Reit will focus on the 5 markets it has presence in for a start.

To be done via a trust scheme, the merger will see MNACT unitholders receive a scheme consideration of S$1.1949 for each MNACT unit held as at the record date to be announced.

For each MNACT unit held, unitholders will receive either 0.5963 new MCT units at an issue price of S$2.0039 apiece, or a combination of 0.5009 consideration units and S$0.1912 in cash. 

For illustrative purposes, this means that a unitholder holding 10,000 MNACT units will receive 5,963 MCT units should they elect to receive the scrip-only consideration or 5,009 MCT units and S$1,912 in cash should they elect to receive the cash-and-scrip consideration.

This implies a gross exchange ratio of 0.5963 times.

The scheme consideration price of S$1.1949 is in line with MNACT’s net asset value (NAV).

Since its listing in 2013, MNACT units have only occasionally traded above their book values: briefly in 2015; for a short period from December 2017 to February 2018, when they traded as high as 1.03 times book; and for a few months in 2019.

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.

“Historically, we have been trading below NAV,” said Cindy Chow, chief executive officer of MNACT’s manager. “So we think that the scheme consideration being at our net asset value, being at what we are worth, is reasonable, fair, and at the same time gives that immediate benefit to our unitholders in terms of the upfront offer premium.”

The merger appears to have been anticipated by the market. Over the 2-week period before a trading halt was called, MNACT units had risen 5.4 per cent – from S$1.05 to S$1.11 – on high trading volumes.

Meanwhile, for MCT unitholders, the merger will be 8.9 per cent accretive to distribution per unit (DPU) and 6.5 per cent accretive to NAV on a pro forma basis.

The total scheme consideration amounts to some S$4.2 billion. No more than S$417.3 million, or 9.9 per cent of the total consideration, will be fulfilled in cash, with the remaining amount to be satisfied via consideration units.

MPACT is expected to have a gearing ratio of 39.2 per cent as at Sep 30, 2021, on a pro forma basis, and will have a debt funding capacity of approximately S$3.8 billion.

“On a strategic level, we believe this is a once-in-a-lifetime opportunity to bring together 2 leading commercial Reits with highly complementary qualities. Nearly every Reit has been focused on growing through the acquisition of assets. However, we believe that the key to sustained growth is a platform with scale and reach,” said Lim.

Said Chow: “With a strengthened portfolio, higher financial flexibility and debt headroom, MPACT will be well placed to accelerate its growth, pursue larger value-creating acquisitions and ride on the recovery and long-term growth of Asia.”

The proposed merger will require unitholders’ approvals at respective extraordinary general meetings (EGMs) to be convened.

MCT unitholders holding more than half of the total number of votes cast have to first approve the trust scheme as an interested party transaction and agree to the issuance of new MCT units as part of the consideration.

Unitholders representing more than 75 per cent of total votes cast will also need to approve the change in MCT fee structure and any required subsequent changes to the trust deed.

The merged entity’s management fee structure will follow that of MNACT, with a base fee of 10 per cent of distributable income plus a performance fee of 25 per cent of year-on-year growth in DPU. MCT’s current management fee structure is a base fee set at 0.25 per cent per annum of total assets plus 4 per cent per annum of net property income.

Meanwhile, over at MNACT, unitholders representing more than 75 per cent of total votes cast will need to approve proposed amendments to MNACT’s trust deed to introduce provisions to facilitate the implementation of the trust scheme.

In addition, the merger must be approved by a majority in number of MNACT unitholders present and voting in person or by proxy representing at least three-fourths in value of the MNACT units held by these unitholders.

If approved, the merger is expected to be completed around mid June 2022.