What You Need to Know About the New MCT/MNACT Merger

This is what you exactly need to know about the latest MCT/MNACT merger. And what's the potential new dividend yield you'll get.

Both Mapletree Commercial Trust (SGX: N2IU) (MCT) and Mapletree North Asia Commercial REIT (SGX:RW0U) (MNACT) are excellent Singapore REITs. 

And both are owned by one of Singapore’s biggest private property investment firm — Mapletree Investment Pte Ltd.

MCT and MNACT own some of Asia’s quality retail and office properties. 

  • MCT focuses in Singapore properties
  • MNACT owns assets across China, Japan, South Korea and Hong Kong

Today, both MCT and MNACT going to merge — MCT wants to buy over MNACT, combining both Singapore REITs into one of Asia’s biggest REITs. This new Singapore REIT will be called Mapletree Pan Asia Commercial Trust (MPACT). 

In fact, this will put MPACT as the 7th biggest REIT in Asia behind other big REITs like Link REIT, CapitaLand Commercial Integrated Trust and Ascendas REIT.

Source: MCT/MNACT Joint Presentation Slides 31 Dec 2021


What You Need to Know About the MCT/MNACT Merger

MCT will use its own shares to buy out MNACT shares.

After this merger, MCT’s half-yearly distribution per unit (DPU) will immediately grow by 8.9% to around 4.72 to 4.78 cents per unit. That’s a potential 9.56 cents per unit. 

Distribution per unit tells you roughly how much dividends you’ll get. Because it’s mandated that all Singapore REITs must pay at least 90% of their profits as dividends to quality for tax savings. 

This is called “DPU accretive”.

And it’s not too bad a deal for MCT unitholders. But even better for MNACT unitholders. 

Let me explain.

If you’re MNACT unitholder, you’ll have two options here:

  1. For every MNACT shares you own, you can choose to get 0.5963 units of MNACT
  2. For every MNACT shares you own, you can choose to get S$0.1912 cash per unit + 0.5009 new MCT units.

Source: MCT/MNACT Joint Presentation Slides 31 Dec 2021

By choosing one of these options above, your current MNACT is now “valued” at 1.0x Price-to-Net Asset Value. 

Price-to-Net Asset Value is a quick measure to determine the value of your Singapore REIT shares. It’s an estimate of a REIT’s book value. 

Net Asset Value is total assets minus off all liabilities, leaving only the total equity of the REIT, or the REIT’s net worth.

MNACT’s Net Asset Value was S$1.19 per unit and shares have been trading at a discount to its Net Asset Value. 

Once this merger is done, MNACT unitholders will get an instant 7.6% gains on their shares (assuming they have traded in their MNACT shares for one of the two options above). 

This brings MNACT’s Price-to-Net-Asset Value to 1.0x.

You see, MNACT shares was going nowhere because of the 2019 Hong Kong protests and then COVID hit a year later. That forced many of MNACT’s China and Hong Kong rents to get affected. 

After this merger, this “discount” gap is forced to close, boosting profits for MNACT unitholders. 

So Why Merge?

Like all other Singapore REITs are facing, there’s a lack of quality properties to buy in Singapore today. All the ‘best in class’ properties have already been held by the big Singapore landlords. And no Singapore REIT in its right mind will sell its quality assets.

As a much bigger REIT, MPACT can better negotiate for cheap debt to buy assets overseas. In fact, MPACT can potentially borrow up to S$3.7 billion of debt to aggressively acquire new assets.  

After this merger, as a unitholder of the new MPACT, you’ll own all of MCT and MNACT”s 18 properties — including VivoCity, Mapletree Business City, mTower, Bank of American Merril Lunch HarbourFront, Festival Walk, Gateway Plaza, Sandhill Plaza etc. These properties have a combined property value of S$17 billion, producing around S$360 million of profits. 

Source: MCT/MNACT Joint Presentation Slides 31 Dec 2021

What’s even better is tenants in MPACT are more diversified — Google, BMW, Seiko, HP Janapa and other big financial names as their quality tenants. In fact, each rental income from each tenant will contribute less than 6% of its total gross rental income. 

Even if one of its tenants decide to withdraw, it won’t affect much of MPACT’s rental income.

Source: MCT/MNACT Joint Presentation Slides 31 Dec 2021

Is the Potential Dividend Yield Good?

What I don’t like about this merger is, as a former MNACT unitholder, you’ll probably get a much lower dividend yield. Today, MNACT trades at around 6% dividend yield. But after switching MNACT shares for the new MPACT shares, you’ll probably get slightly lower than 5% dividend yield.

How do I calculate this? I simply take the potential full DPU of 9.56 cents per unit after the merger, divide by MCT’s current share price. 

If you’re okay with a close to 5% dividend yield, this is one new Singapore REIT worth looking at. The new MPACT has properties that are close to full occupancy and a strong sponsor — Mapletree Investments behind them. 

Sometimes investing can be simple.

Willie Keng, CFA

Founder, Dividend Titan

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2 years ago

Hi, any thoughts on the short lease remaining of Festival Walk? Thank you.

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