Questions Surround Lack of Synergies and Financial Implications
The Securities Investors Association (Singapore) (Sias) is calling for greater clarity on the proposed merger between Mapletree Commercial Trust (MCT) and Mapletree North Asia Commercial Trust (MNACT), citing concerns about the necessity and strategic benefits of the deal.
Limited Operational Synergies and Surprising Mandate Shift
Under the proposed terms, MNACT unitholders would exchange each unit for 0.5963 of a new MCT unit or a combination of 0.5009 of a new MCT unit and S$0.1912 in cash. However, Sias noted a lack of “apparent operational synergies” between the two real estate investment trusts (REITs).
The merger also signifies a shift for MCT from its Singapore-focused mandate to include broader Asian gateway markets, which has unsettled some MCT unitholders who prioritised stability in the Singapore market. Following the announcement, MCT’s unit price has declined by 10% as of early February.
Underperformance of MNACT Assets
Concerns are heightened by underwhelming performance from MNACT’s key assets, Festival Walk in Hong Kong and Gateway Plaza in Beijing, which together account for over 70% of its portfolio.
Festival Walk: Rental reversion for the six months ending September 30, 2021, was negative 30%, compared to negative 21% the previous year.
Gateway Plaza: Rental reversion was negative 24%, down from negative 7% the prior year.
Sias has queried whether the merger is an attempt to leverage MCT’s stronger portfolio to counterbalance MNACT’s underperforming assets.
Valuation and Strategic Questions
Sias also questioned whether MNACT unitholders might be better served by maintaining the current strategy or pursuing a merger only at a price above its net asset value (NAV). Additionally, it asked if MNACT’s manager is actively seeking competing bids or signalling openness to superior offers.
Conversely, Sias raised concerns about whether MCT is overpaying for MNACT, given MNACT’s historical unit valuation below NAV.
Management Fees and Performance Waivers
The merger introduces a revised management fee structure, replacing a base fee of 0.25% of total assets with 10% of distributable income and a performance fee of 25% year-on-year growth in distribution per unit (DPU), up from the original 4% of net property income.
Sias queried whether the performance fee waiver currently in place for MNACT—where fees are waived until its standalone DPU exceeds 7.124 cents—will carry over to the merged entity.
Market Reactions
On Monday, MCT units closed at S$1.86, up 0.5%, while MNACT units rose 0.9% to S$1.10.
The proposed merger has sparked debate over its strategic and financial merit, with Sias pressing for transparency to ensure unitholders’ interests are safeguarded.
