Mapletree Wins Approval for $3.1B Commercial REIT Merger

Shareholders of Mapletree Commercial Trust (MCT) and Mapletree North Asia Commercial Trust (MNACT) have approved a S$4.22 billion ($3.07 billion) merger, which creates the Singapore exchange’s third largest REIT, after sponsor Mapletree Investments sweetened the deal with an all-cash payout option.

During an extraordinary general meeting held Monday, the implementation of the scheme garnered consent from 91.67 percent of all votes cast by MCT shareholders and 99.03 percent of the votes from MNACT shareholders, according to a joint same-date news release from the respective managers of the trusts.

MCT will acquire all of MNACT’s issued and paid-up units under the scheme, paving the way for the creation of Mapletree Pan Asia Commercial Trust (MPACT), which is expected to become the seventh largest REIT in Asia, and ranking only behind CapitaLand Integrated Commercial Trust and Ascendas REIT on the SGX. The merged entity will have S$17.1 billion in assets under management and a portfolio with 11 million square feet (over 1 million square metres) of net lettable area, an average occupancy of 97.2 percent and weighted average lease expiry of 2.5 years.

“The enlarged financial muscles of MPACT will enable us to undertake capital recycling opportunities, take on value-enhancing asset enhancement and development initiatives, and pursue larger acquisitions in Asia’s key gateway markets,” said Sharon Lim, CEO of Mapletree Commercial Trust Management. She added that “with a diversified and high quality portfolio across Singapore, Hong Kong SAR, China, Japan and South Korea, of which best-in-class assets constitute approximately 67 percent of the merged portfolio, we believe we can deliver.”

Bumpy Road to Green Light

The scheme is expected to take effect in early August, subject to the receipt of all necessary approvals. MNACT is scheduled to be delisted from the Singapore Exchange in mid-August.

MCT, the largest pure-play commercial REIT in Singapore, ended 2021 with the offer to acquire MNACT, the first and only North Asia-focused Singapore-listed REIT. Over the months leading to the approval, the proposal faced hurdles including criticism from some shareholders. The merger scheme was even labelled “opportunistic” by activist investor Quarz Capital Management, which called for the rejection of the offer.

Shortly after the offer was submitted, Moody’s Investors Service placed MCT under review for a potential downgrade over concerns regarding the scheme. The rating agency said the company might incur heavier debts, especially if after the merger it decided to adopt a more aggressive long-term financial approach. On the same note, Moody’s placed MNACT under review for a possible upgrade on 5 January on the belief that the REIT would benefit from being fully owned by MCT.

On 21 March, MCT attempted to allay some concerns regarding the scheme and revised its offer to include an all-cash option of S$1.1949 per unit for shareholders of its target.

The cash-only consideration became the default for the proposal, but the options to receive 0.5963 consideration units at the issue price of S$2.0039 for every unit held, or a cash-and-scrip consideration comprising S$0.1912 in cash and S$0.5009 consideration units at the same issue price, were kept on the table.

In the latest joint announcement, the REITs noted that once shareholders elect which option they prefer to receive their consideration, MCT’s manager may undertake a non-renounceable preferential offering of up to 1.09 billion units at S$2.0039 apiece to raise $2.2 billion. In support of the scheme, Mapletree Investments, the Temasek Holdings-backed sponsor of the merging REITs, committed to subscribing to all the units that may be offered and also volunteered for a six-month lock-up of its unitholdings in MPACT.

Moving Ahead

Anchored by a high-quality and diversified commercial portfolio, MPACT will be a proxy to key gateway markets across Asia, according to MCT and MNACT. Through the enlarged entity, both REITs are expecting to pursue further growth and deliver sustainable value to their shareholders.

Upon its creation, MPACT will have footprints in five markets across Asia where its 18 diversified assets are situated. It will have a portfolio that is 44 percent retail, 35 percent office and 21 percent business parks.

“MPACT is well placed to reposition the enlarged portfolio and to ride on the recovery and long-term growth of Asia to deliver long term sustainable value to all unitholders,” said Cindy Chow, CEO of Mapletree North Asia Commercial Trust Management.

If all goes according to the merging REITs’ plan, MPACT will formally enter the playing field in August.

Despite rising interest rates across Asia, analysts remain upbeat on the outlook for Singapore REITs. Charu Chanana, a strategist at Saxo Markets, pointed out in a 19 May note that S-REITs, as long as they have manageable debt profiles, stand to benefit from the global and regional opening after the peak of the COVID-19 pandemic.

Chanana said S-REITs underperformed recently in May on the back of strong gains since March but still outperformed the global REITs portfolio in 2022 amid inflation that could lower distributions and interest-rate hikes that could have a material impact on the trusts’ finance cost, especially if these companies have a large-floating rate debt. While warning of the potential implications of worsening inflation and further rate hikes, she said office- and retail-focused REITs are well-positioned to capitalise on the return of employees to offices, noting that office REITs like MCT may even raise rents.