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CapitaLand Trusts to merge in US$6.2 billion real estate deal

Funan Mall (PHOTO: CapitaLand)

By David Ramli and Abhishek Vishnoi

(Bloomberg) -- Singapore’s CapitaLand Mall Trust and CapitaLand Commercial Trust plan to merge in an S$8.3 billion ($6.2 billion) deal, the latest in a string of real estate investment trust consolidations.

CapitaLand Mall Trust will buy all CapitaLand Commercial Trust units for S$999.1 million cash and the issue of S$7.2 billion of new shares, according to an exchange filing Wednesday, with the balance made up of fees and other expenses.

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 M&A deals of all time in the city-state. Benefits include the ability to consolidate management expertise and build a bigger war chest for acquisitions.Read more: Singapore, Hong Kong REITs Target Overseas Offices in Yield Hunt

Combined, the entity is expected to be the largest REIT in Singapore by market value and total portfolio property value, according to Wednesday’s statement. It will have the ability to undertake up to S$4.6 billion of overseas acquisitions in developed countries, while remaining predominantly Singapore focused.

CapitaLand Mall Trust CEO Tony Tan and CapitaLand Commercial Trust CEO Kevin Chee said the combination of their companies would ideally lead to a positive re-rating, cheaper capital and more liquidity. This in turn could fuel large-scale expansion and renovation of their portfolios.

“We want to do larger investments because it makes sense,” Chee said in an interview Wednesday. “When you have a platform of S$22.9 billion, there are few limits to what we can do as long as we maintain our gearing leverage” and rating agencies remain comfortable.

Overseas Expansion

Both executives said the merger would help the new group be a more attractive bidder for land and projects.

“It’s a trend where we see REITs pushing for bigger size and diversification, both in terms of geography and asset type,” said Joel Ng, an analyst at KGI Securities (Singapore) Pte. “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.”

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

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 S$7.6 billion of assets comprising serviced residences and hotels.

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

“Temasek’s restructuring of its portfolio and the REIT consolidation theme continues,” Justin Tang, head of Asian research at advisory firm United First Partners, said. “Temasek’s deal with CapitaLand earlier in 2019 sparked yet another ‘What next?’ speculation in its portfolio. We got the answer today.”

The total cost of the CapitaLand merger comprises the plan consideration of S$8.2 billion, an acquisition fee of S$55.6 million, and professional and other fees and expenses of S$22 million. The cash component will be financed using existing debt facilities.

Singapore, Frankfurt

The tie-up is also expected to be distribution per unit and net asset value accretive to CapitaLand Mall Trust unitholders. Tang said that meant the deal wasn’t likely to meet many hurdles.

“As we have seen in prior REIT mergers, vote risk is low given the accretive DPU and sensible business logic of a merger to create a best of breed retail/office portfolio in the face of competition presented by online shopping platforms,” he said. “The enhanced financial headroom and scale presents greater geographic reach and opportunities, which is a positive in the longer term.”

CapitaLand Mall Trust has a portfolio of 15 city and suburban shopping malls with good connectivity to public transport. It is the largest shopping mall owner on the island with a share of shopping mall floor space by net lettable area of about 14%, more than double its closest peer.

CapitaLand Commercial Trust’s portfolio, meanwhile, comprises 10 office and commercial buildings, eight of which are in Singapore’s central area, and two in Frankfurt. CCT is the largest owner of so-called grade A assets in Singapore’s central business district by net lettable area. Its buildings include One George Street, Raffles City, Collyer Quay and CapitaGreen.

“We can not only ring-fence against different cycles but invest in different cycles,” CapitaLand Mall Trust’s Tan said. “That’s the true beauty of this merger.”


© 2020 Bloomberg L.P.