CAPITALAND MALL TRUST (SGX:C38U)
CapitaLand Mall Trust - Surprise Merger Of Two REIT Giants
- We place our NEUTRAL call and Target Price under review pending approval of the proposed merger between CapitaLand Mall Trust (SGX:C38U) and CapitaLand Commercial Trust (SGX:C61U).
- The merger would result in the combined REIT being the largest in Singapore and third largest in Asia Pacific. The new entity would have better scalability and growth opportunities, with larger pool of assets in the acquisition pipeline, asset class diversification and potential lower capital cost.
- With size, scalability and diversification being critical factors driving REIT performance, we recommend both unitholders to accept the offer.
Merger details.
- The proposed scheme consideration values CapitaLand Commercial Trust at SGD2.1238/unit (1.2x P/BV), with 88% paid in CapitaLand Mall Trust units (0.72 new units/CapitaLand Commercial Trust unit) and remaining SGD0.2590 in cash, implying a gross exchange ratio of 0.82x. Post-merger, sponsor CapitaLand (SGX:C31) will retain 29.1% stake in the merged entity.
- The deal is DPU accretive for both the REITs (1.6% for CapitaLand Mall Trust and 6.5% for CapitaLand Commercial Trust) and net asset value. The deal is subject to unitholders approvals and is expected to be completed by 1H20.
Key benefits and reasons for merger.
- We view one of the key reasons for the merger is to enhance portfolio resilience by combining asset classes (retail, office and integrated developments) and reducing reliance on single assets. With the retail market undergoing transformation globally, we believe such a move increases longer-term defensiveness. The new entity is also likely to see further lowering of capital cost and some cost synergy in its portfolio.
- The merged entity will become the largest in Singapore and third largest in Asia Pacific with combined market capitalisation of SGD16.8bn, making it the go-to REIT for exposure to Singapore commercial space (96% of total). It provides the combined entity with a larger debt headroom of c.SGD2.9bn (assuming 45% levels) for acquisitions, and also enhances development headroom.
What’s next for the combined entity?
- Both the REITs’ management teams emphasised on overseas expansion (developed markets only) while remaining Singapore-centric, with overseas expected to account for 20% of overall in the medium term.
- With integrated developments becoming the key trend globally, the merger will also reduce any potential conflict of interest between the two REITs and will allow them to evaluate acquisitions as a whole. There is also potential for CapitaLand Mall Trust to redevelop some of the ageing retail assets in its portfolio into integrated developments in the future.
Fee structure and acquisition fees.
- Post-merger, CapitaLand Mall Trust and CapitaLand Commercial Trust will maintain their current management fee structure as part of the combined REIT, while the fee structure for new acquisitions will be based on CapitaLand Mall Trust’s fee structure. The acquisition fee for the transaction will also be lower at 50bps compared to the typical 1%.
- Our Target Price and rating are currently under review pending merger approvals. See Capitaland Mall Trust Target Price; Capitaland Mall Trust Analyst Reports.
Vijay Natarajan
RHB Securities Research
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https://www.rhbinvest.com.sg/
2020-01-22
SGX Stock
Analyst Report
2.380
SAME
2.380
