• Mapletree Commercial Trust (SGX:N2IU) and Mapletree North Asia Commercial Trust (SGX:RW0U) have jointly proposed a merger effected by a trust scheme of arrangement. The merger will increase AUM by 94% and propel the combined REIT into becoming Asia’s 7th-largest REIT with a diversified portfolio of 18 commercial properties across Singapore, Hong Kong, Mainland China, Japan and South Korea.
• Mapletree Commercial Trust's unitholders are expected to benefit from accretion to pro forma 1HFY22 DPU by 7.5% (scrip only) to 8.9% (scrip and cash) vestors.io onThursday, December 30, 2021

Coming Together to Create Mapletree Pan Asia Commercial REIT

• Mapletree Commercial Trust (MCT) and Mapletree North Asia Commercial Trust (MNACT) have jointly announced a proposed merger effected by a trust scheme of arrangement to create a flagship commercial REIT. Mapletree North Asia Commercial Trust unitholders will receive a scheme consideration of S$1.1949 per unit (aggregate scheme consideration is S$4,215.6m) to be satisfied by either:
  1. 0.5963 new Mapletree Commercial Trust units at an issue price of S$2.0039 per Mapletree North Asia Commercial Trust unit (scrip only)
  2. 0.5009 new Mapletree Commercial Trust units (84%) and S$0.1912 in cash (16%) (scrip and cash)
• Extending geographical coverage to North Asia. Mapletree North Asia Commercial Trust is the first S-REIT to focus on investing in high-quality commercial properties located in North Asia. Its assets under management (AUM) was S$8.4b as of Sep 21. It owns 13 properties in
  • Hong Kong (retail mall Festival Walk),
  • Mainland China (office building Gateway Plaza in Beijing and business park property Sandhill Plaza in Zhangjiang Science City at Shanghai’s free trade zone),
  • Japan (nine office buildings – five in Tokyo, one in Yokohama and three in Chiba) and
  • South Korea (office building The Pinnacle Gangnam at Gangnam-gu, Seoul).

Scaling the League Table

• The combined entity Mapletree Pan Asia Commercial Trust (MPACT) will South Korea with AUM of S$17.1b.

Significant Positive Impact on DPU and NAV

• Mapletree Commercial Trust unitholders are expected to benefit from leverage post-merger ranges from 38% (scrip only) to 39.2% (scrip and cash), representing an increase of 4.3-5.5ppt.

Increased Diversification Across Geographies and Asset Classes

• Management is keen to acquire and business travellers. Festival Walk managed to maintain occupancy rate at 99.9% as of Sep 21. However, average rental reversion has worsened to negative 30% in 1HFY22. Festival Walk accounted for 26% of MPACT’s AUM.

Revised Management Fees

• Mapletree Pan Asia Commercial Trust (MPACT) will adopt a new management fee structure with base fee at 10% of distributable income and performance fee at 25% of y-o-y change in DPU. The new management fee structure will better align MPACT to unitholders’ interest.

Indicative Timeline

• The merger is subject to approval from Mapletree Commercial Trust’s and Mapletree North Asia Commercial Trust’s unitholders during Mapletree Commercial Trust’s EGM and Mapletree North Asia Commercial Trust’s EGM and trust scheme meeting to be held by mid-Apr 22. Payment to Mapletree North Asia Commercial Trust unitholders is expected to be completed by end-June and delisting of Mapletree North Asia Commercial Trust by end-June.
• We maintain our existing DPU forecast.
• Maintain BUY. Our target price of S$2.48 is based on DDM (cost of equity: 5.75%, terminal growth: 1.8%).
• Catalysts:
  • Yield accretion from merger with Mapletree North Asia Commercial Trust.
  • Mapletree Commercial Trust has five properties located in the HarbourFront area, which accounted for 91.5% of its AUM in aggregate. It will benefit immensely from the development of the Greater Southern Waterfront (GSW) and rejuvenation of Sentosa Island and Pulau Brani.

Source: UOB Kay Hian Research - 3 Jan 2022