The era of REIT mergers is far from over.
Just last week, Mapletree Commercial Trust (SGX: N2IU), or MCT, and Mapletree North Asia Commercial Trust (SGX: RW0U), or MNACT, announced a S$4.2 billion merger to form a new mega REIT named Mapletree Pan Asia Commercial REIT (MPACT).
Just two months ago, two industrial REITs — ESR-REIT (SGX: J91U) and ARA Logos Logistics Trust (SGX: K2LU), announced a S$1.4 billion merger to become Singapore’s fifth-largest industrial REIT.
Mapletree’s move also comes more than one year after a mega-merger between CapitaLand Mall Trust and CapitaLand Commercial Trust to form CapitaLand Integrated Commercial Trust (SGX: C38U), or CICT.
And two years ago, two REITs, Frasers Logistics & Industrial Trust and Frasers Commercial Trust, both under sponsor Frasers Property Limited (SGX: TQ5), combined to form Frasers Logistics & Commercial Trust (SGX: BUOU).
This latest transaction between the Mapletree peers is the latest in a series of mergers that has consolidated the Singapore REIT landscape.
Here are five things that investors should know about this upcoming merger.
The details of the merger
First off, let’s have a look at the mechanics of this deal.
The combined entity, MPACT, is estimated to have a market capitalisation of around S$10.5 billion and will hold a diversified portfolio of 18 commercial assets across Singapore, China, Hong Kong SAR, Japan, and South Korea.
Assets under management (AUM) will rise to almost S$17.1 billion with pro-forma net property income for fiscal 2022’s first half (1H2022) at nearly S$360 million.
Source: Mapletree Commercial Trust Presentation Slides
The diagram above shows two options for unitholders of MNACT.
Option one consists of the issuance of cash and new units of MCT, with each unit of MNACT receiving 0.5009 units of MCT and S$0.1912 of cash.
By way of illustration, a unitholder with 10,000 units of MNACT will receive 5,009 units of MCT and S$1,912 in cash if he opts for the cash plus scrip option.
The second option is to receive 0.5963 MCT units at an issue price of S$2.0039 per MNACT unit. The same unitholder will receive 5,963 MCT units for his shareholding of 10,000 units of MNACT.
Here are five things investors should know:
1. Launchpad for MCT
The merger will also enable MCT to accelerate its regional expansion as it will have footholds in countries outside of Singapore.
MCT’s current portfolio comprises five properties located in Singapore, and the merger with MNACT will increase its regional coverage and position MPACT for better growth.
MPACT can then tap on its sponsor, Mapletree Investments Pte Ltd (MIPL), to further expand its regional footprint.
2. Increasing diversification
By merging, MPACT will also reduce its reliance on any single tenant based on gross rental income (GRI).
Previously, MCT’s largest tenant took up 10.8% of GRI while MNACT’s largest tenant made up 8.1%.
The merged entity’s largest tenant, Google, will take up just 5.7% of GRI.
The top 10 tenants for MPACT will make up 23.1% of total GRI, down from 28.3% for MCT and 38% for MNACT.
MPACT’s occupancy level will remain high at 97% while the weighted average lease expiry will stay constant at 2.6 years.
3. Top 10 largest REITs in Asia
With this merger, MPACT will hop into the league of Asia’s top 10 largest commercial REITs.
At number one is Hong Kong’s Link REIT (HKSE: 0823) with a market capitalisation of around S$24.7 billion.
CICT and Ascendas REIT (SGX: A17U), both under sponsor CapitaLand Investment Limited (SGX: 9CI), are in third and fifth place, respectively.
MPACT will slot itself into seventh place post-merger.
With the increase in size comes an uplift in free float to S$6.7 billion while the REIT’s weight in key indices such as the FTSE EPRA NAREIT and the Straits Times Index (SGX: ^STI) will also increase.
4. An increase in debt funding and development headroom
MPACT will enjoy greater financial flexibility as its debt funding capacity will rise to around S$3.8 billion post-merger.
The combined entity’s gearing ratio will stand at 39.2%, still below the 50% statutory limit set by Singapore’s central bank.
The increased headroom allows the REIT to pursue larger acquisitions and gears it up for more opportunities to increase its asset base.
The headroom for development and asset enhancement initiatives (AEI) has also increased to S$1.7 billion, allowing more flexibility for MPACT to undertake such measures to enhance unitholder value.
5. Both DPU and NAV accretive
Most importantly, this transaction will increase distribution per unit (DPU) for MCT unitholders.
The pro-forma 1H2022 DPU will rise by up to 8.9% from S$0.0439 to S$0.0478 assuming all unitholders (except for sponsor MIPL) take up the cash plus scrip option.
Net asset value is also set to rise by 6.5% to S$1.79 upon completion of the merger.
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Disclaimer: Royston Yang owns shares of Frasers Logistics & Commercial Trust.
