CapitaLand Group Proposes $6.1B Merger of Office, Retail REITs

Just one year after CapitaLand began its S$11 billion acquisition of Ascendas-Singbridge, Southeast Asia’s largest real estate group has proposed to merge a pair of commercial real estate investment trusts in a S$8.27 billion ($6.13 billion) cash-and-stock deal.

In a conference with analysts and the media this morning the managers of CapitaLand Commercial Trust (CCT) and CapitaLand Mall Trust (CMT) revealed their plan to merge the two REITs to create Asia’s third-largest listed property trust with a market capitalisation of around S$16.8 billion.

The merged entity will be called CapitaLand Integrated Commercial Trust and the managers of CCT and CMT foresee the new trust as having the financial firepower to reach beyond Singapore for acquisitions in developed property markets around the region.

Buyout Plan Offers 4.1% Premium for CCT Units

“The merged entity will have a combined property value almost double that of CMT’s, and a 75 percent larger market capitalisation from where we are today,” Mr Tony Tan, CEO of CMT’s manager said in a statement.

The long-time CapitaLand executive went on to explain that by combining office assets with retail properties, the enlarged trust would have a more balanced market exposure, reduced asset concentration risk and a more diversified tenant base.

The proposed deal involves CMT paying a total of S$999.1 million in cash, along with 2,777.5 million new units in the retail trust issued at S$2.59 each, to acquire all of the issued units in CCT. Unitholders in the office trust would receive S$0.259 in cash and 0.72 new CMT units for each unit in CCT.

The arrangement, which requires approval from investors in both of the listed trusts, would provide CCT unitholders with S$2.1238 in value for each unit, which translates to a 4.1 percent premium over the 30 day volume weighted average trading price of CCT units on the Singapore exchange.

CapitaLand, which is the sponsor of both of the REITs, owns around 24.48 percent of CMT and just over 29 percent of the units in CCT.

The expected market cap for CapitaLand Integrated Commercial Trust, which is equivalent to $12.45 billion, would place the combined entity behind only Hong Kong’s Link REIT, which ranks as the largest in the region with a $22.39 billion market cap and Australia’s Scentre Group, which has a $14.16 billion value.

Integrated Developments From Experienced Partners

The merger would combine CMT’s portfolio of Singapore shopping centres with the office assets of Capitaland Commercial, which include whole or partial stakes in nine buildings in its home city, along with properties in Malaysia and Germany.

The two trusts have a history of having worked together since 2006, when they jointly acquired the Raffles City complex in Singapore for S$2.1 billion.

The trust managers expect the merger to be completed in June of this year, after which they expect the new entity’s enlarged scale to allow for bigger projects.

“Our focus will continue to be retail and office,” CMT’s Tan said, “but we will also enlarge our focus to look at integrated development.” The REIT boss pointed to the recently completed redevelopment of the Funan complex on North Bridge Road in Singapore as indicative of the integrated properties that could be undertaken. That 889,000 square foot (82,5891 square metre) project combines a shopping mall with a pair of office towers and a lyf co-living centre.

Looking Beyond Singapore

In addition to the capacity for larger projects, CapitaLand Group foresees the merger enabling CICT to make the leap to cross-border investments, where Singaporean institutions are playing an ever-growing role.

“The enlarged scale will allow us to compete better in Singapore, but also in developed markets to drive further growth,” CMT’s Tan said. “Our capital can thus be efficiently deployed to where we see the best risk-return opportunities across asset classes and markets.”

While Singapore is expected to continue to be the merged trust’s primary territory, Tan said that the new entity would look to allocate up to 20 percent of its portfolio to overseas deals, while cautioning that this did not represent a hard target for the management.

Consolidation has been a trend with CapitaLand and other entities backed by Singapore’s Temasek Holdings in recent times, including the developer’s merger with Ascendas-Singbridge. After that S$11 billion transaction was completed in June of last year, CapitaLand rolled out a merger of the group’s Ascott REIT and Ascendas Hospitality Trust in July.