The managers of Mapletree Commercial Trust (MCT) and Mapletree North Asia Commercial Trust (MNACT) have, on Dec 31, announced the proposed merger of both REITs.
MCT is Singapore’s largest pure-play commercial REIT while MNACT is the first and only North Asia-focused REIT to be listed in Singapore.
Post-merger, the new REIT will be named Mapletree Pan Asia Commercial Trust (MPACT). It will be Mapletree’s flagship commercial REIT positioned to be the proxy to key gateway markets of Asia.
Upon the completion of the merger, the new combined REIT will have a market capitalisation of around $10.5 billion, making it one of the top 10 largest REITs in Asia.
Together, MPACT will hold a diversified and high-quality portfolio of 18 assets across Singapore, China, Hong Kong, Japan and South Korea with assets under management (AUM) of around $17.1 billion.
Trust scheme of arrangement
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The merger will be done via a trust scheme of arrangement with MCT acquiring all MNACT units in exchange for new units in MCT or a mix of cash and MCT units.
Unitholders of MNACT will receive a scheme consideration of $1.1949 for each unit held as at the record date, bringing the total scheme consideration to $4.215 billion.
The total consideration will comprise of no more than $417.3 million in cash, and the balance amount being in consideration units.
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The consideration will be made up of either 0.5963 new MCT units at an issue price of $2.0039 per MNACT unit, or a combination of 0.5009 new units in MCT and 19.12 cents in cash.
The consideration implies a gross exchange ratio of 0.5963 times.
The manager of MCT has waived its entitlement to its acquisition fees under the deed of trust constituting MCT dated Aug 25, 2005.
Mapletree Investments, the sponsor of both MCT and MNACT, will also undertake to receive its scheme consideration in 100% consideration units.
Following the merger, Mapletree Investments will hold around 36.1% of the total issued units in the merged entity. The management fee in the merged entity will also be pegged to distributable income and distribution per unit (DPU) growth.
Rationale
According to the managers, the new combined REIT seeks to create a “robust platform” that combines both the individual strengths of MCT and MNACT, “thereby unlocking the full potential of a multi-geography Asian platform”.
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The REIT will also be able to tap into some of the largest real estate markets in Asia and benefit from the “long-term rise of Asia”.
The merger is also said to be able to improve cashflow stability from high-quality tenants while reducing income concentration.
As a combined entity, the new REIT is said to maintain a high portfolio occupancy and well-staggered lease expiry profile.
Furthermore, the enlarged balance sheet brought about by the merger will provide the new REIT with enhanced financial flexibility including higher debt funding capacity which will enable it to pursue bigger acquisitions.
Finally, MCT unitholders will be able to enjoy some 8.9% and 6.5% of accretion to MCT’s DPU and net asset value (NAV) on a pro forma basis.
The proposed merger and the allotment and issue of the consideration units will require the approval of at least 50% of MCT shareholders.
The amendments to the MCT trust deed to change MCT’s fee structure will require the approval of at least 75% of MCT shareholders.
Sharon Lim, CEO of the manager of MCT calls the merger a “win-win” for unitholders of both MCT and MNACT and said it was “compelling on multiple fronts”.
“Financially, MCT unitholders can immediately enjoy approximately 8.9% and 6.5% of accretion to DPU and NAV respectively on a pro forma basis… On a strategic level, we believe this is a once-in-a-lifetime opportunity to bring together two leading commercial REITs with highly complementary qualities,” says Lim.
“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. MCT has a longstanding track record of stability and strength, while MNACT offers a ready launchpad into key gateway markets of Asia. Therefore, by merging the two REITs, we can better unlock the upside potential of a multiple-geography platform, put the merged entity onto a new growth trajectory, and crystallise MPACT’s position as a distinctive proxy to the long-term rise of Asia,” she continues.
“We can also expect immediate benefits including enhanced geographic diversification, reduced single asset concentration and improved tenant diversification. Best-in-class assets, namely Festival Walk, Mapletree Business City I and II, and VivoCity, will continue to constitute a significant proportion of MPACT’s asset base. Together, these will improve overall cashflow stability and resilience through market cycles. We are confident that the merger, which brings together the best of both REITs, can be even more successful in driving growth and delivering value for all unitholders,” she adds.
Cindy Chow, CEO of the manager of MNACT called the merger a “transformative milestone” for both REITs.
“For MNACT unitholders, they will enjoy immediate and attractive financial returns with the scheme Consideration at a premium over MNACT’s trading prices while remaining invested in a bigger and more diversified platform. They will also benefit from the larger market capitalisation and increased representation in key indices through the enlarged platform that would potentially attract a wider investor base and further improve trading liquidity,” says Chow.
“MNACT has an entrenched local presence with a portfolio of quality properties in China, Hong Kong SAR, Japan and South Korea. By combining these with MCT’s stable and resilient Singapore portfolio, the merger offers immense synergies and improved financial capability to expand into the key markets in Asia. 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,” she adds.
“We are thus excited by the merits and future prospects of the merged entity where both REITs come together to build an even stronger platform where we can drive growth and deliver long-term sustainable value to all unitholders,” continues Chow.
DBS Bank and HSBC Bank were the sole financial advisers to the managers of MCT and MNACT respectively.
Shares in MCT and MNACT last traded at $2 and $1.11 respectively, with both REITs requesting for trading halts on the morning of Dec 28.
Photo: MNACT
