Two CapitaLand Reits propose merger to form third largest in Asia-Pacific

The new, combined Reit will have a market cap of about $16.8 billion, and a combined property value of about $22.9 billion.
The new, combined Reit will have a market cap of about $16.8 billion, and a combined property value of about $22.9 billion.PHOTO: CAPITALAND

SINGAPORE (THE BUSINESS TIMES, BLOOMBERG) - CapitaLand on Wednesday (Jan 22) announced the proposed merger of CapitaLand Commercial Trust (CCT) and CapitaLand Mall Trust (CMT) in an $8.27 billion cash-and-stock deal, extending the wave of consolidation in the sector.

The new combined entity - called CapitaLand Integrated Commercial Trust (CICT) - is expected to become the third largest real estate investment trust (Reit) in the Asia-Pacific and the biggest in Singapore, with a market cap of about $16.8 billion, and a combined property value of about $22.9 billion. This is based on valuations of CMT's and CCT's properties as at Dec 31, 2019.

CICT will have the ability to undertake up to $4.6 billion of overseas acquisitions in developed countries, while remaining predominantly Singapore-focused.

"As the largest S-Reit (Singapore Reit), CICT will be CapitaLand's primary investment vehicle for commercial real estate in Singapore and other developed markets," the company said on Wednesday.

With 15 shopping centres, CMT is the largest mall owner here, while CCT is the biggest office landlord with 10 buildings, eight in Singapore and two in Frankfurt, Germany. The properties include Funan, Plaza Singapura, Junction 8 and Tampines Mall for CMT; and Asia Square Tower 2, CapitaGreen and One George Street for CCT.

The deal, by way of a trust scheme of arrangement, is subject to the approval of unitholders of CMT and CCT, and will see CMT acquiring all the issued units in CCT in the form of cash and new CMT units.

For each CCT unit they hold, CCT unitholders will receive $0.259 in cash and 0.72 new CMT units at an issue price of $2.59 apiece. This means that CCT unitholders will be paid a scheme consideration of $2.1238 per CMT unit, which implies a gross exchange ratio of 0.82 times.

The deal is expected to lead to higher distribution per unit (DPU) for both CMT and CCT after it goes through. For illustrative purposes, the pro-forma DPU accretion will be about 1.6 per cent for CMT and 6.5 per cent for CCT as at Dec 31, 2019, if the merger had been completed on Jan 1, 2019, and if CMT had held and operated the properties of CCT through to Dec 31.

With the proposed merger, the CapitaLand group will have five Reits listed on the Singapore Exchange: CICT, Ascendas Real Estate Investment Trust, Ascott Residence Trust, Ascendas India Trust and CapitaLand Retail China Trust. CapitaLand will also retain its sponsor stake of about 29.1 per cent in the merged entity. 

The merger is at least the fifth tie-up among Singapore-listed Reits over the past 12 months and ranks as one of the top 10 merger and acquisition deals of all time in Singapore. Benefits include the ability to consolidate management expertise and build a bigger war chest for acquisitions.

 
 

"It's a trend where we see Reits pushing for bigger size and diversification, both in terms of geography and asset type," said Mr Joel Ng, an analyst at KGI Securities (Singapore). "Given the limited opportunities in Singapore for retail and office acquisitions, the combined entity will allow for more such integrated developments as it expands overseas."

CHEAPER CAPITAL

The enlarged scale of the combined portfolio should allow the new group to compete better in Singapore and overseas in the retail and office sectors. Higher trading liquidity and a potential for positive re-rating could also bring a more competitive cost of capital.

The takeover action kicked off in January last year when CapitaLand struck a $6 billion deal with Temasek Holdings to combine Ascendas and Singbridge.

OUE Commercial Reit in April agreed to buy OUE Hospitality Trust. And in July, Ascott Residence Trust and Ascendas Hospitality Trust agreed to create the largest hospitality trust in the Asia-Pacific region, with $7.6 billion of assets comprising serviced residences and hotels.

Last month, Frasers Logistics & Industrial Trust agreed to buy Frasers Commercial Trust in a $1.5 billion deal.

 
 

The total cost of the latest proposed merger is estimated at $8.27 billion, including $999.1 million in cash consideration and about 2.78 billion new CMT units issued at $2.59 apiece. 

Trading in CCT and CMT was halted on Wednesday morning before the stock market opened. CCT units closed two cents or 0.9 per cent lower at $2.13 on Tuesday, while CMT units closed down two cents or 0.8 per cent at $2.59.

The proposed merger is subject to approval by unitholders of CMT and CCT at upcoming extraordinary general meetings (EGMs), the approval of CCT unitholders at a scheme meeting, as well as regulatory and third-party approvals.

The EGMs and scheme meetings are expected to take place by May, while the payment of cash and consideration units will be made to CCT unitholders by June.  

The deal is expected to be completed before the end of the second quarter this year. Thereafter, CCT will become a wholly owned sub-trust of CMT and be delisted from the Singapore Exchange.