Sias questions MCT-MNACT proposed merger

The Securities Investors Association (Singapore) or Sias, is seeking further clarification as to why the merger between Mapletree Commercial Trust (MCT) N2IU and Mapletree North Asia Commercial Trust (MNACT) RW0U : RW0U 0% is necessary given that there are "no apparent operational synergies" between them.

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.

In a press statement on Monday (Feb 21), Sias said that the proposed merger comes as a surprise to some MCT unitholders who had invested in the Reit for its exposure to the stable and resilient Singapore market.

The merger would mean MCT has to expand its mandate to include key Asia gateway markets from the current focus on Singapore, said Sias.

To add, the unit price of MCT has shed about 10 per cent as at early February since the announcement was made.

Meanwhile, MNACT's key assets, namely Festival Walk and Gateway Plaza, continue to report lower average rental rate.

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Rental reversion for MNACT's Festival Walk stood at negative 30 per cent for the 6 months to Sep 30, 2021 versus the negative 21 per cent the previous year. For MNACT's Gateway Plaza in Beijing, the rental reversion was negative 24 per cent compared with negative 7 per cent the year before.

Against this backdrop, Sias asked MNACT if the merger is a way to leverage MCT's portfolio at a time where their 2 assets, which account for more than 70 per cent of MNACT's portfolio, are underperforming.

Sias also pointed out that if one were to look at the relative performance of the 2 Reits in the past year, MNACT has performed as strongly as, if not stronger than, MCT.

It is therefore querying whether MNACT and its unitholders would be better served if the manager forges ahead with its strategy and only consider a merger at an offer price above its NAV.

Sias is also seeking clarity on whether the manager of MNACT is actively seeking competing bids and whether it has signalled to the market that it is prepared to consider superior offers.

On the other hand, MCT was asked whether it might be overpaying for MNACT's portfolio since MNACT has openly stated that the market has historically valued its units at below net asset value (NAV).

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.

In September 2020, the manager of MNACT waived its entitlement to any performance fees until the DPU of MNACT (on a standalone basis) exceeds the threshold DPU of 7.124 cents.

On that front, Sias asked MCT if it would be honouring the performance fee waiver that the manager of MNACT has given to its unitholders while MNACT was asked if the performance fee waiver be "carried forward" to merged entity.

Units of MCT ended Monday S$1.86, up S$0.01 or 0.5 per cent while units of MNACT was up S$0.01 or 0.9 per cent at S$1.10.