Business Times Breaking News
Mapletree merger: Moody's reviews MCT for downgrade, MNACT for upgrade
Sharanya Pillai
561 words
5 January 2022
Business Times Singapore
STBT
English
© 2022 SPH Media Limited

MOODY'S Investors Service has placed the Baa1 issuer rating of Mapletree Commercial Trust (MCT) on review for downgrade, ahead of its planned merger with Mapletree North Asia Commercial Trust (MNACT) in a S$4.2 billion deal.

Concurrently, Moody's is reviewing MNACT's Baa3 rating for an upgrade, the credit rating agency announced on Wednesday (Jan 5) after trading hours.

On Dec 31, MCT and MNACT proposed a merger that would give the combined entity a theoretical market cap of S$10.5 billion, making it the seventh-largest Reit in Asia. The transaction is expected to close by end-June.

"The review for downgrade reflects the potential weakening of MCT's credit metrics and uncertainty around its financial policy following the merger with MNACT," said Moody's analyst Tan Junling.

The deal could raise MCT's leverage, considering MNACT's weaker leverage profile and the incurrence of incremental debt and perpetual securities to fund the merger's cash consideration, Moody's noted.

On a pro forma basis, it expects MCT's adjusted net debt to increase to around 9.4 to 9.9 times Ebitda (earnings before interest, taxes, depreciation, and amortisation), from 8.2 times for the year ending March 2022. This is weaker than the 8.5 times downgrade threshold for MCT's Baa1 rating.

Conversely, MNACT's review for upgrade reflects expectations that the trust could benefit from the deal. "However, the final impact on MNACT's rating will depend on our assessment of the likelihood of extraordinary support that MCT will provide to MNACT in case of distress," Tan added.

If the merger goes ahead as planned, Moody's review of MCT will focus on the business profile of the combined trust, the funding structure for the S$417.3 million cash consideration and the trust's financial policy, including its liquidity profile.

MCT's rating could be downgraded by up to 1 notch, if Moody's assesses it to have a more aggressive long-term financial policy post-merger. But the agency will also take into account its increased scale and geographic diversification.

The review of MNACT will focus on the ability and willingness of MCT to provide support to MNACT, its business strategy, capital structure and transparency around operational and financial performance. An upgrade will further rest on MNACT's stand-alone credit profile remaining intact.

Moody's is also reviewing its (P)Baa1 senior unsecured ratings on the medium-term note programs of MCT and its unit Mapletree Commercial Trust Treasury Company (MCTTC), as well as the Baa1 ratings on senior unsecured notes drawn down from the program under MCTTC.

MNACT-related ratings under review include the provisional (P)Baa3 ratings on the senior unsecured euro medium-term note (EMTN) programme of MNACT; the guaranteed senior unsecured EMTN programmes of 2 relevant entities, as well as the Baa3 guaranteed senior unsecured rating on the notes under Mapletree North Asia Commercial Treasury Company (HKSAR)'s EMTN programme.

The outlook on all MCT's ratings has been changed from "stable" to "rating under review", while that of MNACT has been changed from "negative" to "rating under review".

Units of MCT closed at S$1.84 on Wednesday, up 1.1 per cent, while units of MNACT closed flat at S$1.09.

SPH Media Limited

Any MCT and MNACT shareholders here?

What you gonna do now after the merger news broke?

Companies & Markets
HOCK LOCK SIEW; Reits raising funds should allow retail investors a bigger bite for both IPOs and placements
Leslie Yee
970 words
6 January 2022
Business Times Singapore
STBT
English
© 2022 SPH Media Limited

Daiwa House Logistics Trust's public offer tranche comprised 25 million units or 3.7 per cent of the number of units issued at the time of listing.

LAST year began as a fairly quiet year for new listings of real estate investment trusts (Reits) on the local bourse. But it ended with a bang as Digital Core Reit (DC Reit) made its trading debut on Dec 6, 2021.

On its first day of trading, the pure play data centre trust - with a portfolio of 10 freehold data centres in the United States and Canada - closed at US$1.01. That was 15 per cent above its initial public offering (IPO) price of US$0.88. By end-2021, DC Reit was up 32 per cent from its IPO price.

Unfortunately, many retail investors failed to get a slice of DC Reit at its IPO. The public offer tranche ended with subscriptions of 16.1 times the value of units on offer. One in two applicants in the public offer tranche received zero allocation, while most successful applicants received a fraction of what they applied for.

DC Reit's public offer tranche comprised 13.35 million units or under 1.2 per cent of the number of units issued upon the trust's listing.

The sum raised from the public offer tranche of around S$16 million may just about buy one super luxury condominium unit here.

Excluding the over-allotment option, the public offer tranche accounted for 5 per cent of units in the offering. Meanwhile the placement tranche, which is typically taken up by institutions and high net worth individuals, accounted for 95 per cent of units in the offering.

The placement tranche was also allocated all of the 53.4 million units under the over-allotment option.

Perhaps the public offer tranche for DC Reit could have been much larger. And, the public offer tranche should have gotten at least some of the units under the over-allotment option.

From an optics perspective, when issues are well subscribed, perhaps the parties linked to the manager of a trust should not receive any units under the placement tranche. In the case of DC Reit, Tan Jeh Wuan, independent non-executive director of the manager, received 300,000 units under the placement tranche.

Perhaps the Singapore Exchange, issue managers and issuers can work together to be more generous to retail investors in IPOs.

Some issuers have set better standards in this respect.

Daiwa House Logistics Trust (DHLT), which made its trading debut here on Nov 26, 2021, was more generous to retail investors.

DHLT's public offer tranche comprised 25 million units or 3.7 per cent of the number of units issued at the time of listing. The split between the placement tranche and public offer tranche of units in the offering, excluding the over-allotment option, was 90 per and 10 per cent respectively.

When state investor Temasek Holdings rolled out a S$350 million offer of 5-year bonds with a 1.8 per cent coupon in November 2021, it had a placement tranche of S$250 million and a public offer tranche of S$100 million. Both the placement and public offer tranches were well subscribed. The upsize option of S$150 million was fully allocated to the public offer tranche.

All 19,162 valid retail applications received some allocation of Temasek's bonds. And 44 per cent of applicants, who applied for S$13,000 and below, received their allocations in full.

Another aspect of capital raising on the local bourse which may need looking into is private placements, which are very popular with Reits.

Reits typically undertake private placements to raise equity to fund new acquisitions. Generally, these placements are done at discounts to the last traded prices of units and made available only to institutions and high net worth individuals.

Take the case of the private placement in December 2021 by CapitaLand Integrated Commercial Trust (CICT) to raise funds largely for its proposed acquisitions in Australia.

CICT raised S$250 million from issuing 127.6 million new units at S$1.96 per new unit.

The issue price of the new units was at a discount of 2.1 per cent to the adjusted closing price of CICT, computed based on the closing price on Dec 6, 2021, prior to the launch of the placement, subtracting the mid-point of the estimated advanced distribution. Also, the issue price of the new units was at a discount of 4.7 per cent to the volume weighted average price for trades in the units of CICT on Dec 6, 2021.

Perhaps efforts should be made to give retail investors the opportunity to take up the new units at discounted prices in placements exercises.

The attraction of doing private placements is that monies are received much faster than under rights issues. The placement can be open for less than a day and the new units issued in just over a week after the launch of the placement. In contrast, it takes around a month for new units under a preferential offering to be issued post the announcement of an equity fund raising.

But given the technology available and the fact that placements are done by entities that are already listed, surely it is possible to open up private placements to retail investors - some of whom should be able to act fast.

Singapore aims to be an inclusive society. In the spirit of inclusiveness, give retail investors a fair tilt and more in equity raisings on the local bourse.

SPH Media Limited

SINGAPORE (THE BUSINESS TIMES) - EC World Reit has received a notice of compulsory expropriation of Fu Zhuo Industrial, a port property located in Hangzhou, China, its manager said on Monday (Jan 10).

The government of Linping district in Hangzhou had issued the real estate investment trust (Reit) with the notice on Jan 6 for the development of the Grand Canal National Cultural Park in Hangzhou.

Fu Zhuo Industrial is located on the east bank of the Beijing-Hangzhou Grand Canal, in the west of Chongxian New City in Hangzhou.

The manager said the Reit is entitled to receive compensation based on the expropriation valuation of Fu Zhuo Industrial in accordance with the notice. This includes the property's land use rights, buildings and equipment.

Fu Zhuo Industrial - a port property comprising berths and office buildings - has a total land area of 24,403 sq m and a total net lettable area of 7,128 sq m. It has a remaining lease tenure of 34 years.

It is owned by Hangzhou Fu Zhuo Industrial, which is in turn wholly owned by EC World Reit, and has a valuation of 117 million yuan (S$25 million) as at Dec 31, 2020, representing 1.5 per cent of the Reit's whole portfolio.

The target date of vacating the property is March 31.

The Reit's manager said it has engaged the relevant authorities to discuss the details of the compulsory expropriation, including the details of compensation, and will provide further updates once available.

Units of EC World Reit closed flat at 76 cents last Friday.

don't get why many ppl say SG reits better than MY reits.
I check year 2022 dividend yield several local REITs paying 7-8% total dividend yield for 2021:
https://dividends.my/dividend-ranking/

Some of top SG reits pay about 4-5% for entire year 2022. Maybe got a bit more growth for their stock price but thats it.

Still torn whether should I focus on MY or SG reits. Don't have so much to dump into both sides yet.

Majority of my investments are in US stocks @ IBKR.

Companies & Markets
MARK TO MARKET; MCT-MNACT merger makes most sense when viewed from perspective of Mapletree Investments
Ben Paul
1315 words
10 January 2022
Business Times Singapore
STBT
English
© 2022 SPH Media Limited

Unitholders of MCT should vote against the deal, unitholders of MNACT should sell, and everyone should realise Reit mergers are really about the sponsors

AFTER digesting the proposed merger of Mapletree Commercial Trust (MCT) and Mapletree North Asia Commercial Trust (MNACT) over the past week, the verdict from the market seems clear: MCT has lost 8.5 per cent of its market value while MNACT has slipped 1.8 per cent.

As I see it, the implications of this thumbs-down from the market are 3-fold:

* Unitholders of MCT should vote against the merger.

* Unitholders of MNACT should sell their holdings in the market to take advantage of MNACT's elevated but falling unit price.

* Mapletree Investments - the sponsor group behind MCT and MNACT - should prepare to address concerns that the merger prioritises its own interests over those of investors who have been supporting its capital management platforms.

Under the proposed merger, unitholders of MNACT will exchange each unit they own for 0.5963 of a new MCT unit; or 0.5009 of a new MCT unit plus S$0.1912 in cash.

The gross exchange ratio of 0.5963 is very much in favour of unitholders of MNACT.

Just before the merger announcement, MNACT had closed at S$1.11 while MCT had closed at S$2.00. Given the exchange ratio, units in MNACT were being priced at more than S$1.19 worth of MCT units - or some 7 per cent more than MNACT's market price.

Not surprisingly, since the merger was announced on Dec 31, the relative market prices of MNACT and MCT have moved towards the gross exchange ratio under the deal.

On Jan 3, the first post-announcement trading day, MNACT climbed 3.6 per cent to close at S$1.15 while MCT fell 4 per cent to close at S$1.92.

MCT has continued falling though, dragging MNACT down with it. On Friday, MCT closed at S$1.83 while MNACT closed at S$1.09.

Why is the market seemingly baulking at MCT's proposal to combine itself with MNACT?

Merits of merger

Much like every other real estate investment trust (Reit) merger proposed over the last couple of years, the combination of MCT and MNACT is premised on the idea that bigger is better.

MCT currently owns 5 Singapore-based properties worth S$8.8 billion, while MNACT holds 13 properties worth S$8.3 billion located in China, Hong Kong, Japan and South Korea.

The combined entity - to be named Mapletree Pan Asia Commercial Trust (MPACT) - would be more diversified in terms of assets, geography and tenants.

MPACT is also expected to be among the 10 largest Reits in Asia, putting it in a stronger position to garner an investor following.

On top of that, the merger is expected to be immediately accretive in terms of distribution per unit (DPU) and net asset value (NAV) per unit for unitholders of MCT.

On a proforma basis, MCT's DPU for the 6 months to Sep 30, 2021 would have been boosted by as much as 8.9 per cent. Its NAV per unit as at Sep 30, 2021 would have been lifted by as much as 7.1 per cent.

Higher valuation unlikely

However, MCT has a better performance track record than MNACT.

Since its initial public offering (IPO) in 2011, MCT's DPU and NAV per unit have grown by compound annual rates of 4.8 per cent and 6.3 per cent, respectively.

MNACT's DPU and NAV per unit have grown by much slower compound annual rates of 1.9 per cent and 3.2 per cent, respectively, since its IPO in 2013.

Before the merger was unveiled, MCT was trading at an annualised H1 FY2022 DPU yield of 4.4 per cent and a 16.3 per cent premium to its NAV as at Sep 30 2021. (Mapletree's Reits have March year-ends).

MNACT was trading at an annualised H1 FY2022 DPU yield of 6.2 per cent and a 12.3 per cent discount to NAV as at Sep 30 2021.

While the merger with MNACT will certainly enlarge and diversify MCT's portfolio, it may not lead to a superior market valuation for the combined entity.

For one thing, the largest asset in MPACT's portfolio will be Festival Walk in Hong Kong - which includes a shopping mall that suffered rental reversions of negative 30 per cent in the first half of FY2022.

Another concern is that Festival Walk's leasehold title will expire in 25 years - on June 30, 2047. Comprising a mall and offices, Festival Walk is valued at some S$4.45 billion and will account for more than one-quarter of MPACT's portfolio.

The largest asset MCT currently owns is VivoCity, a thriving mall that is highly visible to Singapore-based investors. The property - which has a 99-year leasehold title starting on Oct 1, 1997 - is valued at nearly S$3.15 billion and accounts for more than one-third of MCT's portfolio.

MCT achieved a positive 2.3 per cent portfolio rental reversion in H1 FY2022. Its office and business park assets saw a 1.5 per cent reversion while its retail properties benefited from a 3.5 per cent reversion.

Vote against merger

On balance, MCT would probably be better off not merging with MNACT.

While it would be smaller, it would arguably wield a superior market valuation - better enabling it to raise funds and make acquisitions on terms that would be immediately accretive to its DPU and NAV per share.

More to the point, its unitholders would be spared the market de-rating that seems to be unfolding.

Of course, if unitholders of MCT do not pass the resolutions to implement the proposed merger, MNACT is likely to be hit by a nasty sell-off.

During the 1-month period leading up to the announcement of the merger, MNACT rallied 11 per cent.

By selling in the market, unitholders of MNACT would be protecting themselves from further de-rating of MCT in anticipation of the merger going through as well as the risk of MNACT becoming untethered from MCT if the merger is blocked.

Sponsors' priorities

This brings me to the question of why the merger is being proposed at all.

Two months ago, this column asserted that Reit mergers in the local market have been less about the pursuit of size than the priorities of their sponsors.

The proposed merger of MCT and MNACT starts to make more sense when viewed from that angle. MPACT is likely to be a far more effective and viable asset securitisation platform for Asian commercial property than MNACT, and thus more useful to Mapletree Investments.

MCT and MNACT are not the only Mapletree Reits currently in the spotlight.

Mapletree Logistics Trust (MLT) is due to hold an extraordinary general meeting this week to seek approval for the acquisition of 16 properties from its sponsor for more than S$1 billion.

On a pro forma basis, the acquisition would lift MLT's DPU by 1.1 per cent.

However, excluding the "income support" provided to some of the properties that are still undergoing stabilisation, the pro forma impact on MLT's DPU would actually be marginally dilutive.

Coming just as MCT and MNACT are trading lower on their merger proposal, this could add to the unfortunate perception that Mapletree Investments' priorities are not aligned with the interests of public investors.

* The writer owns units in Mapletree North Asia Commercial Trust.

SPH Media Limited

yeah heard many mergers going on among SG reits now.

Which SG reits do you guys recommend buying? Can list a few tops ones to help me narrow down?
I found a list via youtube video here: https://investmentmoats.com/DividendScreene...endScreener.php (need to copy paste to excel and filter)

But I'm not familiar which to look into first.. so many of them

Good evening all
May I know if Singapore REITS is the best investment to hold long term?
I am looking for long term investment with the lowest risk in Singapore.
Thank you.

I am looking for long term investment with the lowest risk in Singapore.

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The Fund is an index fund which seeks investment results that correspond closely to the total return of the iBoxx ABF Singapore Bond Index before fees and expenses. The iBoxx ABF Singapore Bond Index is an indicator of investment returns of debt obligations denominated in Singapore dollars issued or guaranteed by the government of Singapore or any government of People's Republic of China, Hong Kong SAR, Indonesia, Korea, Malaysia, Philippines or Thailand (collectively, the "Asian Governments"), by an agency or instrumentality of the Singapore government (or any other Asian Government), by a Singapore government (or any other Asian Government) sponsored entity or a quasi-Singapore government (or any other Asian Government) entity and Singapore dollar denominated debt obligations issued by supranational financial institutions.