Proposed merger with MNACT will address lack of growth: Mapletree Commercial Trust

WHILE Mapletree Commercial Trust (MCT) is a Singapore-focused commercial real estate investment trust (Reit) which investors have rewarded for its stability, MCT unitholders had over the years been concerned about the Reit's lack of growth.

"With the city having relatively limited transaction volumes for office and retail assets as compared to other key gateway markets in Asia, opportunities for growth remain sparse for us," said MCT's manager on Wednesday (Feb 23), in response to queries from the Securities Investors Association (Singapore) or Sias.

Merging with and Mapletree North Asia Commercial Trust (MNACT) which has scale and reach in North Asia will therefore bring about long-term sustainable growth for MCT, said its manager.

Growth and expansion in Pan Asia will also be much easier as opposed to buying individual assets and trying to build an operational team from scratch, noted the manager.

Among immediate benefits include enhanced geographic diversification, reduced single asset concentration and improved tenant diversification.

Sias had on Monday posed a series of questions to both Reits, seeking clarity for the rationale of the merger given that there appears to be "no apparent operational synergies" between them.

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Under the proposed merger between the 2 real estate investment trusts (Reits), unitholders of MNACT will exchange each unit they own for 0.5963 of a new MCT unit; or 0.5009 of a new MCT unit plus S$0.1912 in cash.

Meanwhile, the manager of MNACT said in separate bourse filing that it will not seek or solicit competing bids for the duration of the implementation agreement.

The exclusivity to MCT would allow for the trust scheme to be brought to MNACT unitholders for a vote. The granting of exclusivity is common in precedent trust scheme transactions in Singapore, noted the manager.

The manager also clarified that the proposed merger is the only offer that has been received for the entire portfolio to date. That said, the manager will consider any third party offer for the Reit or assets which it receives.

There is also no break fee payable to MCT in the event a competing bid is successful.

On whether MNACT's management is concerned about Festival Walk's land lease expiring in 25 years, the management said that there are no exceptional circumstances to expect that the lease will not be renewed.

This is given that under the policy in Hong Kong, all non-renewable leases may be extended upon expiry for a term of 50 years without payment of an additional premium, at the sole discretion of the government.

The Lands Department has extended most non-renewable leases since the policy was first implemented in July 1997.

A new management fee comprising of a base fee of 10 per cent of distributable income (originally 0.25 per cent of total assets) and a performance fee of 25 per cent of the year-on-year growth in distribution per unit (DPU) (originally 4 per cent of net property income) is being proposed.

Assuming all MNACT unitholders with the exception of Mapletree Investments entities elect to receive the cash and scrip consideration, the total management fees for the merged entity - Mapletree Pan Asia Commercial Trust (MPACT) - based on the new fee structure works out to around S$68.3 million or 0.39 per cent of MPACT's total asset base, on a pro forma basis.

This is lower than the S$71.8 million or 0.41 per cent of MPACT's total asset base if MPACT were to continue with MCT's existing fee structure.

This is despite a merger that is expected to deliver between 7.5 per cent to 8.9 per cent of accretion to distribution per unit, said the manager.

MCT's manager added that the new fee structure is one that is "fundamentally aligned" with unitholders' interest.

Units of MCT ended Wednesday flat at S$1.85, while units of MNACT closed unchanged at S$1.08.