Between Oct 30 and Nov 5,   CapitaLand China Trust   : AU8U -1.24% Management Limited (CLCTML) non-executive independent director Chua Keng Kim made his first open market purchases since joining the board in January, buying 500,000 units at an average price of S$0.789 each. 

 

Chua brings extensive experience from senior roles at organisations including SC Capital Partners, Stonegate China Properties, Rodamco Asia and GIC Real Estate.

 

Since its 2006 IPO, CLCT has expanded from seven shopping malls to a diversified portfolio of 18 properties across 12 major Chinese cities. 

 

In 2025, CLCT has maintained its focus on driving asset performance, reconstituting its portfolio through strategic divestments and investments, and enhancing financial management. This includes participating in CapitaLand Commercial C-Reit, unlocking value from mature assets, and implementing asset enhancement initiatives to support organic growth.

 

For its Q3 FY25 (ended Sep 30), CLCT&rsquo s gross revenue fell 8 per cent year on year, and net property income declined 8.5 per cent. Excluding the impact of CapitaMall Yuhuating&rsquo s divestment, same-store gross revenue was down 3.4 per cent and net property income fell 4.4 per cent. Retail revenue dropped 8.4 per cent (or 1.8 per cent excluding Yuhuating), business park revenue fell 9.1 per cent, while logistics park revenue rose 13 per cent due to improved occupancy.

 

As at Sep 30, retail properties contributed 69.9 per cent of gross rental income, with nine-month 2025 shopper traffic up 4.5 per cent and tenant sales rising 2.3 per cent year on year. CLCTML highlights retail as a key asset class in China benefiting from government initiatives to boost domestic consumption.

 

Business parks accounted for 26.5 per cent of gross rental income and logistics parks made up 3.6 per cent, both strategically aligned with China&rsquo s technology and innovation-driven agenda, providing exposure to sectors such as semiconductors, electronics, and information and communication technology.

 

 

CapitaLand India Trust (CLINT) has issued $100 million perpetual securities at a 4.4% fixed rate under its $1.5 billion multicurrency debt issuance programme on July 2.

 

The trust announced the pricing of the perpetual securities on June 26, and said that net proceeds will be used to refinance existing borrowings, repay loans and finance business activities, acquisitions and its general working capital.

 

DBS, UOB, JP Morgan Securities Asia and Deutsche Bank are the joint lead managers for the issuance.

 

The perpetual securities will be issued in denominations of S$250,000 at an issue price of 100% of the principal amount, and the perpetual security holders will receive distributions at a fixed rate of 4.4% per annum from the expected issue date up till, but excluding, the first reset day on Jul 2, 2030.

 

Subsequently, they will receive distributions at a per-annum fixed rate equal to the five-year Singapore Overnight Rate Average Overnight Indexed Swap, according to the relevant reset date.

CCT makes curious clarification Sabana' s trustee keeps mum and annual report addendum shines light on director independence

 

THIS past week, there were at least three corporate announcements that would have piqued the interest of investors following the spate of real estate investment trust (Reit) mergers in the local market.

 

The strangest one, in my view, was from the manager of CapitaLand Commercial Trust (CCT), which is scheduled to seek unitholder approval to merge with CapitaLand Mall Trust (CMT) at an EGM on Sept 29.

 

The announcement sought to " clarify" a Sept 21 story in this newspaper headlined: " CCT: merger with CMT is between two equals, not a takeover" .

 

The manager of CCT wanted it to be known that the description of the deal with CMT as a " merger of equals" only means that the two Reits are " similar in size and standing as best-in-class platforms" .

 

The manager of CCT also wanted to ensure everyone understood that the deal is " not a takeover" only in the sense that it is not an all-cash buyout by CMT.

 

It went on to describe the deal as a " carefully considered, negotiated and agreed transaction between CCT and CMT, structured as an acquisition by CMT of all (CCT' s units), with CCT becoming a private sub-trust of CMT upon completion" .

 

The announcement left me scratching my head. How could the expression " merger of equals" be misinterpreted in a way that would be detrimental to any party involved in the deal? And, why was it necessary to explain the meaning of " not a takeover" ?

 

Was the announcement supposed to help unitholders of CCT make a better informed decision when they vote this week? Or was its purpose to protect the manager of CCT from spurious accusations that it may have somehow misled investors?

 

It is understandable if the managers of CCT and CMT are feeling nervous. Intra-group Reit mergers have become highly contentious, and questions have been raised about conflicts of interest faced by Reit managers pursuing these transactions.

 

There is clearly a trend among corporate groups with multiple Reits to combine some of them. Through these mergers, their less successful Reits are weeded out and effectively become part of larger entities that might garner higher market valuations.

 

The key challenge in pulling off these deals is convincing unitholders that they will be better off having exposure to the enlarged Reit, even if they do not realise the full underlying value of the units they currently hold.

 

Reit managers are, of course, hardwired to come up with solutions that enlarge rather than reduce the size of their property portfolios. Significantly shrinking or completely liquidating the property portfolio would destroy the Reit manager' s raison d' ê tre.

 

By contrast, unitholders would not be averse to a poorly performing Reit winding itself up, if they were offered a compelling price for the underlying assets. They could quite easily re-invest the proceeds in a more successful Reit.

 

Still, even if Reit managers have been putting forward merger proposals that are ultimately self-serving, most unitholders have, so far, willingly accepted them.

 

In particular, the merger of Fraser Logistics & Industrial Trust (FLT) and Frasers Commercial Trust (FCOT) earlier this year received broad support from unitholders despite the terms being quite negative for FCOT.

 

The proposed merger of CMT and CCT is similarly expected to gain more than enough unitholder support this week.

 

Cautious trustee

 

Minority investors might make their presence felt when the proposed merger of Sabana Reit and ESR-Reit is put to a vote, though.

 

Quarz Capital Management and Black Crane Capital, which claim to have influence over more than 10 per cent of Sabana Reit, have said they will vote against the transaction. Their main contention is that the consideration being offered to unitholders of Sabana Reit is a steep discount to its NAV per share.

 

Yet, the efforts of Quarz and Black Crane to frame the whole transaction as being fundamentally unfair to unitholders of Sabana Reit is proving futile. The managers of Sabana Reit and ESR-Reit have doggedly maintained the narrative about creating a larger entity that would be better able to grow, while regulators have confirmed that everything has been done by the book.

 

On Sept 23, HSBC Institutional Trust Services (Singapore), which is the trustee of Sabana Reit, responded to an open letter from Quarz and Black Crane without directly answering the question asked of it.

 

In their open letter, dated Sept 3, Quarz and Black Crane had asked the trustee to " form an opinion as to whether the (manager of Sabana Reit) has failed to follow the terms of the trust deed" .

 

The trustee merely outlined the steps Sabana Reit' s manager took to evaluate the merger proposal, and restated the Monetary Authority of Singapore' s assurance that safeguards are in place to mitigate conflicts of interest and other risks.

 

Annual report addendum

 

This brings me to the third corporate announcement over the past week that might have been of interest to investors following the spate of Reit mergers.

 

On Sept 21, the manager of Sabana Reit published an addendum to its 2019 annual report.

 

The addendum provides information about an independent director of Sabana Reit' s manager named Ng Shin Ein, relating to her suitability to serve in her current role.

 

Specifically, the addendum notes that Ms Ng was deemed to be independent even though she was until Oct 25, 2019, a non-executive director of Blackwood Investment, which held a 45 per cent stake in Sabana Reit' s manager.

 

The addendum also notes that Ms Ng had been deemed independent despite having received payments from a related company of the manager called InfinitySub in 2018 and 2019. These payments were for the sale of her shares in Blackwood to InfinitySub.

 

The addendum went on to provide information on how Ms Ng' s independence, in spite of these factors, had been determined.

 

There was no explanation as to why all of this was not included in the original annual report, or how Sabana Reit' s manager came to the realisation that the information needed to be disclosed.

 

It would be worrying, in my view, if it was only the current contentiousness about the proposed merger wth ESR-Reit that brought the information to light. These disclosures should have been made regardless.

 

In fact, Sabana Reit should arguably have gone further and disclosed the size of the payments that Ms Ng received from InfinitySub, as that might have a bearing on the market' s view of her independence.

 

Whatever the case, unitholders of Sabana Reit opposed to the merger with ESR-Reit will probably seize on the annual report addendum as further evidence that more regulatory oversight is necessary for intra-group Reit mergers.

 

CAPITALAND Commercial Trust (CCT) and CapitaLand Mall Trust (CMT) in a recent dialogue with unitholders, said that with or without a merger, both Reits (real estate investment trusts) have already been adopting a diversification strategy even within their own portfolios.

 

The dialogue, held virtually on Sept 17 and 18, were organised by the Securities Investors Association (Singapore). More than 200 retail unitholders took part. 

 

The Reit managers were responding to questions about whether the management of both Reits will consider specific business plans to improve their respective Reits rather than to proceed with the merger.

 

This was so that Singapore investors can decide on their own diversification strategy instead of being " forced" to accept exposure to a sector that they do not understand nor want to invest in.

 

CCT said it has been trending towards more white sites and integrated developments, as a response to the evolving real estate landscape, catering to greater demand for integrated living and bringing together work-live-play elements in land-scarce Singapore. CCT' s two latest additions - CapitaSpring and CapitaGreen - are both integrated developments.

 

At the same time, CMT also redeveloped Funan from a pure retail mall into an integrated development comprising an ecosystem of retail, office and co-living components.

 

" The case for a larger and more diversified Reit has become even more compelling in the post-Covid-19 environment. While Singapore retail and office remain relevant, the onset of Covid-19 is likely to accelerate the trend towards more mixed-use precincts and integrated developments across Singapore."

 

The merged entity would also be better positioned, given the combined domain expertise as well as potential cost savings from bulk procurements, further optimisation of the supply chain and the elimination of frictional costs, they said.

 

Both Reits also said that the pro forma accretion to distribution per unit (DPU) is not merely the sum of the combined distributable income from the two entities.

 

The accretion figures of +4.1 per cent and +7.6 per cent for CMT and CCT unitholders respectively have come about as a result of the consolidation of CMT' s retail and CCT' s office portfolios and the ability of both platforms to unlock synergies and create value for the merged entity over time.

 

" Such synergies will include cross-selling opportunities, enhanced digital platform and data analytics and cost optimisation. Moreover, with an enlarged asset base, the merged entity will enjoy a significantly higher development headroom and an enhanced ability and flexibility to undertake larger redevelopments to capitalise on evolving real estate trends and reposition its portfolio," they said.

 

But the accretion figures are backward looking, calculated on a historical pro forma basis assuming the merger was completed on Jan 1, 2019 and July 1, 2019. In view of expected retail rent correction going forward as well as a gradually returning workforce to office properties, unitholders had also wanted to know if such DPU accretion was achievable, and whether the Reits could provide " more realistic" estimates than the pro forma numbers.

 

The Reit managers simply replied that the pro forma financial effects do not take into consideration the synergies and opportunities that may be derived from the leadership, resilience and growth potential of the merged platform. " It is important that we look at the transaction in its entirety," they said, adding that the combined platform is expected to unlock further synergies.

 

In response to questions about whether CMT' s management will consider improving its proposed terms as its unit price has declined drastically since late January when the deal was first announced, and whether CCT' s management still considers the merger proposal to be in the interest of its unitholders given the " significant erosion of value" to its unitholders, both Reits replied that the scheme consideration was arrived at with a " balanced view" for all stakeholders.

 

It was based on an understanding that it would be a " merger of equals" , and would achieve a " balanced and attractive" outcome for both sets of unitholders. It also fundamentally reflects a " market-to-market" valuation of both Reits.

 

They added that CMT and CCT unit prices have largely traded in tandem at the net exchange ratio range of 0.72 to 0.74 times. Furthermore, CCT' s independent financial adviser, Deloitte & Touche Corporate Finance, believes that the financial terms of the scheme are fair and reasonable.

 

" The merger rationale remains valid and has in fact been reinforced by the impact of Covid-19," they said. " The trend towards mixed-use precincts and integrated developments is expected to accelerate post-Covid-19."

Hence, scheme considerations need to be mark-to-market and fair to both sets of unitholders, says CEO of CCT' s manager.

 

CAPITALAND Commercial Trust (CCT) unitholders have had gripes about the terms of its proposed merger with CapitaLand Mall Trust (CMT), but the CEO of its manager Kevin Chee says that all these factors have to be looked at from the perspective this is " a strategic merger of equals . . . not a case of one party buying out the other party like in a takeover" .

 

For instance, some CCT unitholders feel that the exchange ratio should weigh more in favour of CCT unitholders, given the comparatively more dismal outlook for the retail sector. They have also questioned why the combined real estate investment trust (Reit) - assuming the merger succeeds - will adopt CMT' s fee structure, given that office properties require less intensive management than retail malls. There are also other investors who say they will shun the deal because they want to hold onto the pure play office exposure that CCT affords.

 

In an interview with The Business Times at Capital Tower, where the show gallery for its upcoming development CapitaSpring is located, Mr Chee said: " It' s a case of bringing together two best-in-class platforms to create something bigger, better, stronger, more resilient and more efficient.

 

" So when we looked at the scheme considerations, which include the exchange ratio, we already knew that this had to be a mark-to-market transaction, meaning that it has to consider various factors, and the key factor would include the historical and prevailing trading prices of both CMT and CCT."

 

Since Jan 22, CCT and CMT units are down 18 per cent and 22 per cent respectively. But mathematically speaking, the net exchange ratio which factors in the cash consideration remains at 0.72 - on Jan 22 when the deal was first announced, and later on Sept 4 when the circular was despatched to unitholders. In between, the ratio had also remained steady at 0.72 to 0.74. By Sep 18, the ratio rose to 0.77.

 

Mr Chee added that because the deal involved two sets of unitholders, it had to be fair to both sides. Bearing all these considerations in mind, both management teams came up with the scheme consideration that CCT unitholders would receive 0.72 CMT unit and a cash consideration of S$0.259.

 

" We were confident that whatever we presented back in Jan 22 would still be fair today, thats why we didn' t change anything," he said.

 

Regarding fee structure, CMT' s manager charges higher base fees of up to 0.25 per cent per annum of the Reit' s deposited property, versus CCT' s up to 0.1 per cent per annum. Its performance fees are also calculated differently.

 

Mr Chee said that for new assets that are acquired, developed or redeveloped by CapitaLand Integrated Commercial Trust (CICT) - as the new merged entity will be called - they will follow CMT' s fee structure. This is even as the management expertise for offices " may not be as intense" as for retail, because " we look at things holistically . . . we look at any acquisition and investment deal in its entirety, including all the outgoings, including fees," he said.

 

In essence, he means that a singular formula should cover all new assets under the combined Reit - whether office or retail.

 

In the case of CapitaSpring, the new development sitting on the former Golden Shoe Car Park site, it is considered an existing asset which CCT owns 45 per cent in. For the development, the manager will charge asset management fees based on CCT' s existing fee structure, as its other two shareholders, CapitaLand (45 per cent) and Mitsubishi Estate (10 per cent) share the same fee structure as CCT. The development is targeted to be completed in the second quarter of next year.

 

Responding on the matter of some unitholders preferring that CCT remains as a pure play office Reit, Mr Chee replied that every investor is unique and has different mandates. Some may be value-oriented, some look for both growth and value, while others such as hedge funds may have shorter investment periods. Yet, the common thread that runs through all investors is investment returns - the very reason they invest in the first place.

 

" Bearing that common denominator in mind . . . our focus is very much on making sure that we deliver that sustainable return to our investor base. To do that, the pressure is on us to ensure that we drive and extract value from our assets to ensure that we are always relevant," he said.

 

That is why CCT focuses on introducing different concepts and amenities in line with new and evolving trends. The future of commercial real estate and Singapore' s central business district (CBD) is changing with the introduction of the CBD Incentive Scheme, which seeks to reposition the area as a 24/7 mixed-use district by encouraging the conversion of existing older office developments into mixed-use developments. Not capitalising on these trends now would cause CCT to become " irrelevant" in future, he said.

 

All that said, the street' s view is that the merger will likely go through. Travis Lundy, an analyst at Quiddity Advisors who publishes on research platform Smartkarma, said in a Sept 7 post that: " The approvals should be easy. It depends on the retail shareholders of CCT more than anything else, and they have been offered a distribution per unit uplift. In all likelihood, they (will) say yes."

 

But to be sure, not all is fine and dandy in the office sector. Many office buildings remain quiet as the government maintains that telecommuting be the default mode of work under Phase Two. CCT said that for the week ending Aug 28, only 24 per cent of its office community has returned, although that percentage is increasing each week.

 

Asked if any of its tenants are planning to let go of some space in view of their lesser needs, Mr Chee replied that the jury is still out on that. Telecommuting is not new, and the Covid-19 situation has merely accelerated the practice and companies' evaluation of their future space needs. That is why CCT has been incorporating more coworking operators into its buildings even before Covid-19. But Mr Chee is not a believer that work-from-home will be a broad trend even after Covid-19.

 

" In Singapore, what we see is that companies may still sign on these three- to six-year leases but instead of signing 100,000 sq ft on that lease, they may instead sign 80,000 sq ft and the remaining 20,000 sq ft can be taken in a coworking space where lease terms can be shorter, for six months to a year."

 

He said that while some of its tenants are looking at taking up smaller space, there are also others that are expanding as well. " By and large, we have not seen a huge trend of companies taking smaller space yet. Many companies are still in an evaluation stage or renewal stage."

 

He believes rather that companies will adopt hybrid alternative workspace solutions, as employees will continue to need space for networking, discussions and collaboration, and building of company culture.

 

A recent work-from-home survey by Colliers International across the Asia-Pacific concurs with this conclusion. Its findings suggest that having a physical presence in the office is still important, but flexibility from employers is likely to be welcomed.

 

" The proliferation of virtual tools and digitalisation trends have certainly aided telecommuting, but the key aspects of mentorship, collaboration, brainstorming and physical interaction are unlikely to go away, in our view," it said.

 

Mr Chee also has a sober view of where CCT stands in the larger scheme of things. At a market capitalisation of about S$6.7 billion, it is already a constituent on the sought-after FTSE EPRA/NAREIT Global Real Estate Index, and is within the top 10 largest Reits on the Singapore bourse.

 

" But even CMT and CCT individually are still considered small- to mid-caps on a global scale. We are not even there yet," he said.

 

" Many investors cannot even invest in us because we are not considered large-cap, so you can imagine that if we have a merged platform, and it is going to be the second largest Reit in Asia-Pacific, then our investor base and profile will change, and we will probably attract larger funds who can now sit up and look at us and say, ' It' s worth looking at it and putting down an allocation to the Reit' ."

 

With that comes the potential benefits of price rerating and ability to make more competitive bids for acquisitions with a lower cost of funds - necessary ingredients for it to grow its clout on the global stage.

CCT would effectively be diversifying away from offices to retail properties, which could face disruption from e-commerce for years to come

 

CAPITALAND Mall Trust (CMT) and CapitaLand Commercial Trust (CCT) are quickly pushing ahead with their merger plans.

 

With an enlarged flagship asset securitisation vehicle, the CapitaLand group will be in a stronger position to seize growth opportunities as economies around the region emerge from their coronavirus-induced stupor.

 

On top of that, CapitaLand will not have to worry about the possibility of more onerous regulation making such intra-group mergers of real estate investment trusts (Reits) harder to pull off in the future.

 

Under the proposed merger, which was originally unveiled on Jan 22, CMT will acquire CCT to create one of the largest Reits in the region, with a property portfolio topping S$22 billion and an annual net property income (NPI) base of S$1 billion.

 

The managers of CMT and CCT have said that the combined entity, to be called CapitaLand Integrated Commercial Trust (CICT), will be in a better position to raise funds for acquisitions, and pursue initiatives to reposition and enhance the value of its existing properties.

 

Shortly after the merger was announced, however, the Covid-19 panic started. Shopping malls and office buildings emptied out. Reits began withholding distributions to unitholders. And, stocks tanked across the board.

 

The CMT-CCT merger was suddenly not a major priority for CapitaLand. On May 6, the managers of CMT and CCT said they were focused on supporting their tenants, and that the unitholder meetings related to the merger would not be held by May as originally intended.

 

Things started to get back on track about three months later, though. On July 22, the managers of the CMT and CCT said they were working to convene the unitholder meetings before Sept 30.

 

Last Friday, the managers of CMT and CCT announced that their respective unitholder meetings have been scheduled for Sept 29. And, reflecting the CapitaLand group' s eagerness to get the merger done, the manager of CMT said it will waive its acquisition fees of S$111.2 million.

 

Terms unchanged

 

Despite everything that has happened since the merger was announced, the terms of the proposed deal have remarkably not changed. Unitholders of CCT will still receive 0.72 of a unit in CMT plus S$0.259 of cash for each unit they own.

 

On the face of it, the terms still make sense because the market prices of CMT and CCT have not diverged much since January, though they have fallen significantly.

 

On Friday, CMT closed at S$1.93. At that price, unitholders of CCT will be getting a total implied consideration of S$1.6486 for each unit they own. CCT closed Friday at S$1.65.

 

Of course, one could argue that CMT and CCT have not diverged much because the exchange ratio was already known. And, had it not been for the expectation of the merger, CCT might be trading at a significantly higher price.

 

Certainly, Covid-19 does appear to have hit retail properties harder than office properties. URA' s rental index for retail space for Q2 2020 decreased by 3.5 per cent quarter-on-quarter (q-o-q), after decreasing 2.3 per cent in Q1 2020. URA' s office rental index remained unchanged in Q2 2020, after a 0.8 per cent q-o-q decline in Q1 2020.

 

The Covid-19 outbreak also appears to have hit CMT' s operating performance harder than CCT' s. For H1 2020, CMT reported a 16.7 per cent year-on-year (y-o-y) decline in gross revenue to S$318.4 million, and a 20.8 per cent y-o-y fall in NPI to S$216.4 million.

 

CCT reported only a 2.2 per cent y-o-y decline in H1 2020 gross revenue to S$196.4 million, and a 4.5 per cent y-o-y fall in NPI to S$151.1 million.

 

Yet, CMT' s operating performance will probably improve more sharply than CCT' s in H2 2020 as Covid-19 restrictions are lifted and foot traffic at shopping malls recovers. Meanwhile, the office property sector could begin adjusting to the work-from-home trend.

 

Benign financial impact

 

Despite all the turmoil sparked by Covid-19, the raw financial effects of the merger seem benign. On a pro forma basis, unitholders of CCT will see distribution per unit (DPU) accretion of 7.6 per cent, and net asset value (NAV) dilution of 2.8 per cent. Aggregate leverage will rise from 36.4 per cent to 39.7 per cent.

 

Unitholders of CMT will see DPU accretion of 4.1 per cent, and NAV accretion of about 2 per cent Aggregate leverage will rise from 34.4 per cent to 39.7 per cent.

 

The big question for unitholders of CMT and CCT is whether they are willing to go along with CapitaLand' s strategic plan to create a larger and more diversified commercial property Reit.

 

As a unitholder of CCT, I am not keen on its effective diversification away from offices to retail properties, which could face persistent risks for years to come as e-commerce disrupts traditional brick-and-mortar stores. So, I plan to vote against the merger.

 

To be clear, I am not suggesting that CICT will perform poorly. On the contrary, it will probably attract a lot of interest from investors. And, if the merger goes ahead, I will probably hold on to any CICT units that I receive.

 

Yet, I would prefer CCT to remain a pure office property play. CMT would have to offer much better terms for me to willingly exchange my CCT units for units in what will become CICT.

 

Now or never?

 

Interestingly, CMT and CCT are pressing ahead with their merger at a time when some similar transactions are meeting minority shareholder resistance and drawing intense scrutiny.

 

Notably, Quarz Capital Management and Black Crane Capital, which claim to have influence over more than 10 per cent of Sabana Reit, are opposing its merger with ESR-Reit. Like CMT and CCT, the managers of ESR-Reit and Sabana Reit are both owned by a single corporate group.

 

The main contention of Quarz and Black Crane is that the consideration being offered to unitholders of Sabana Reit is a steep discount to its NAV per share. To thwart the deal, the dissident investors have publicly engaged Sabana Reit' s manager and trustee as well as the Monetary Authority of Singapore.

 

Their efforts have created a template of sorts for minority investors to resist future intra-group Reit mergers that they deem unfair, and raise legitimate questions about the effectiveness of current regulations and procedural conventions in these cases.

 

In the end, regulators may have to closely examine the issue of intra-group Reit mergers, and come up with a framework to police these transactions.

 

Market regulation needs to evolve to remain effective. Last year, Singapore Exchange Regulation tweaked the rules related to voluntary de-listings, making it harder for dominant shareholders to take their companies private without properly compensating minority investors.

 

Among other things, exit offers in conjunction with de-listings are now required to be both fair and reasonable.

 

For CMT and CCT, however, the prospect of tougher regulation for Reit mergers will not matter if their proposed deal is approved by their unitholders later this month.

Long-stop date extended to Nov 30 both Reits will hold unitholder meetings on Sept 29 to seek approval for the deal

CAPITALAND Mall Trust (CMT) and CapitaLand Commercial Trust (CCT) on Friday announced deal sweeteners for their proposed merger, such as higher accretion to their respective distribution per unit (DPU), and the decision of CMT' s manager to completely waive the acquisition fee of S$111.2 million.

 

Perhaps the market was holding out for a better gross exchange ratio (GER) for CCT which did not materialise. At the closing bell, CMT units were down 3 Singapore cents or 1.5 per cent to S$1.93, while CCT units lost 3 cents or 1.8 per cent to S$1.65.

 

At a briefing on Friday, CEOs of both managers said that the pro forma DPU for the last 12 months ended June 30, 2020 for CMT would have increased 4.1 per cent, while that for CCT would see an accretion of 7.6 per cent. This was up from accretion of 1.6 per cent and 6.5 per cent that were provided in January, based on the Reits' FY19 DPU.

 

Additionally, CMT is waiving the acquisition fee " in recognition of the unprecedented circumstances brought about by the Covid-19 pandemic" - an increase from the 50 per cent that it said it would waive in January.

 

Citi analyst Brandon Lee said: " The waiver of acquisition fee, resulting in higher DPU accretion, is the major positive in CMT' s revised terms, in our view, which reflects management' s commitment towards the merger.

 

" However, given the ongoing Covid-19, investors' uncertainty over the work-from-home trend and the outlook for downtown retail...we understand some CCT shareholders were expecting a higher implied offer price for CCT via an adjusted GER."

 

The proposed merger was to be effected by a trust scheme of arrangement with CMT acquiring all the units in CCT using 88 per cent equity and 12 per cent debt. CCT unitholders will receive 0.72 new CMT unit and S$0.259 in cash in exchange for every CCT unit.

 

Asked why the GER was not tweaked in favour of CCT unitholders given that the office sector is performing better than retail amid Covid-19 challenges, Kevin Chee, CEO of CCT' s manager, said this was because the market price of both Reits have largely traded in tandem from January up till now, even including the March trough.

 

" We think that the overall metrics of this scheme consideration remain fair because it reflects the market conditions...as what we are seeing today."

 

DBS Bank senior vice-president for group equity research Derek Tan said that it may be that the GER is capping the performance of both Reits and keeping their prices moving in pace with each other.

 

" The original price was struck pre-Covid. Certainly the Covid-19 outbreak has brought significant disruption to CMT. As a CCT unitholder, you might be thinking, ' Am I getting the shorter end of the stick?' . But the accretion is there. And Reits and investors are all beginning to catch onto the idea that ' big is good' ."

 

Recent Reit mergers have been done with the goal of index inclusion, for instance.

 

Both managers continued to extol the merits of the deal, in light of the trend towards mixed-use precincts and integrated developments which is expected to accelerate post-Covid-19.

 

They also said that both sets of unitholders will continue to receive permitted distributions for the period from July 1, 2020 up to the day before the trust scheme becomes effective. Mr Chee said: " There will be a clean up as part of this merger and appropriate distributions accruing to each (set of unitholders) will be distributed accordingly."

 

They added that it was premature to discuss management changes, and will give updates in due course.

 

The long-stop date for the proposed merger has been extended to Nov 30 from Sept 30. Both Reits will hold their respective unitholder meetings on Sept 29 to seek approval for the proposed deal.

 

CMT will hold its extraordinary general meeting (EGM) at 10.30am, while CCT will convene its EGM at 2pm and its trust scheme meeting at 2.30pm. Due to the Covid-19 situation, unitholders will participate via a live audio-visual webcast, or a live audio-only stream. Questions can be submitted in advance.

 

The independent directors of the managers have recommended that unitholders vote in favour of the proposed merger, on the advice of their respective independent financial adviser who say that the deal is on normal commercial terms and not prejudicial to the interests of CMT unitholders, while also " fair and reasonable" for CCT unitholders.

 

Mr Lee from Citi said that if anything, the publication of circulars and notices of timelines relating to the merger helps to dispel any possibility that the merger may not proceed, given the long silence that followed the initial January announcement, mostly because each Reit was busy battling the challenges faced by their portfolio amid the " circuit breaker" .