Both Mapletree Commercial Trust (SGX: N2IU) and Mapletree North Asia Commercial Trust (SGX: RW0U) announced a trading halt before the stock market opened on 28 December 2021.
For unitholders and even the broader market, this was a signal that a merger announcement was imminent. Of course, this is because we’ve seen several similar mega mergers recently. Several notable ones include:
- OUE Commercial REIT and OUE Hospitality Trust in April 2019
- Ascott Residence Trust and Ascendas Hospitality Trust in July 2019
- Frasers Logistics & Industrial Trust and Frasers Commercial Trust in December 2019
- CapitaLand Commercial Trust and CapitaLand Mall Trust in January 2020
- ESR REIT and ARA LOGOS in October 2021
We had to wait a full three days before we saw the merger announcement – and here are 4 things we should know about the merger.
#1 Mapletree Pan Asia Commercial Trust (MPACT) Will Be Top 10 Largest REITs In Asia
As depicted in the image below, the merger between Mapletree Commercial Trust (MCT) and Mapletree North Asia Commercial Trust (MNACT) will create a REIT entity that is within the top 10 largest REITs in Asia.
All images extracted from joint presentation released by MCT and MNACT for the proposed merger
Named Mapletree Pan Asia Commercial Trust (MPACT), and with a market capitalisation of $10.5 billion, the REIT will be the seventh largest REIT in Asia. This compares with MCT, which is currently the 13th largest, and MNACT, which is currently the 26th largest.
MPACT will have a diversified base of 18 assets across key gateway markets in Asia – Singapore, Hong Kong, China, Japan and South Korea. This compares to MCT, which only has 5 properties in Singapore. MNACT, on the other hand, has 13 properties in North Asia and none in Singapore.
This merger is significant as there has been a trend of REITs sizing up to take advantage of scale to attract more media and analyst coverage, place into global benchmark indexes, improve trading liquidity, potentially reduce interest rates and more. Merging will also enable the new REIT entity to compete for growth opportunities.
Read Also: 9 Things To Know About Digital Core REIT Before Investing In This IPO
#2 MNACT Unitholders Have A Choice To Receive Units Only Or Units + Partial Cash
The process for the merger is quite lengthy, and will only be completed by end-June 2022.
For the merger, both MCT and MNACT unitholders have to approve the scheme via an EGM some time in April 2022. However, only MNACT unitholders will have an option in the scheme as MCT will remain the listed entity – acquiring MNACT.
In exchange for their MNACT units, unitholders can choose to receive either MCT units + a cash component OR MCT units in full.
Mapletree Investments Pte Ltd (MIPL) is the sponsor for both REITs. They have committed to go for option 2 – taking only new units.
#3 MNACT’s Units Valued At A Higher Price (But MCT Units Are Not)
Both merger options listed above value MNACT units at $1.1949, while MCT units are valued at $2.0039based on the exchange ratio.
For MNACT unitholders, this offers a positive valuation as its last traded price was $1.11 – or 7.6% lower. MCT’s last traded price was $2.00 – similar to its assumed value in the transaction.
However, based on Net Asset Value (NAV). MNACT’s NAV was $1.229 as at 30 September 2021. MCT’s NAV was $1.68 pre-merger.
#4 Distributions Improve For MCT Unitholders, But Decline For MNACT Unitholders
While MNACT’s unitholders get a better valuation for their units, they will see their distributions decline post-merger. On the other hand, MCT unitholders will see a win in this regard – as the merger is distribution accretive for them.
REITs are known for paying a relatively good distribution. This is why investors pay close attention to this payout when investing. We are given an example of what the distributions would look like in 1H FY21/22 before the merger and after the merger.
Post-merger, Mapletree Commercial Trust unitholders will potentially see distributions improve.
However, post-merger, MNACT unitholders will potentially see their distributions decline.
The reason why there is a range for the decline is due to the merger transaction, which allows MNACT unitholders to receive MCT units + cash OR just MCT units.
For MCT unitholders, they will be better off if MNACT unitholders take a partial cash payout. For MNACT unitholders, they too will be better off if they take a partial cash payout.
Read Also: [2021 Edition] Complete Guide To Start Your REITs Investing Journey In Singapore
Merger Will Only Be Finalised By End-June 2022
As mentioned above, the merger transaction will only be completed by end-June 2022. Below is the timetable for key events that both MCT and MNACT unitholders can expect.
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