SINGAPORE (Jan 22): CapitaLand Mall Trust (CMT) and CapitaLand Commercial Trust (CCT) are proposing to merge into a diversified commercial real estate investment trust (REIT) to be named CapitaLand Integrated Commercial Trust (CICT).

The merged entity is expected to have a market capitalisation of $16.8 billion and a combined property value of $22.9 billion, making it the largest REIT in Singapore and the third largest in Asia Pacific.

CICT brings together CMT’s portfolio of 15 malls in Singapore with CCT’s portfolio of 10 office assets in Singapore and Germany.

The managers say the move will see CICT become the largest proxy for Singapore commercial real estate.

The proposed merger will be via a trust scheme of arrangement, with CMT acquiring all units of CCT for a total consideration comprising approximately 88% in new units in CMT and 12% in cash.

For each CCT unit held, a unitholder will get 0.720 new CMT units and $0.2590 in cash. This implies a gross exchange ratio of 0.820.

Following the proposed merger, property developer CapitaLand will retain its sponsor stake of approximately 29.1% in the merged entity.

“CMT and CCT are heading to the proposed merger from a position of strength. This is a game-changer that will propel both CMT and CCT towards a higher and more sustainable growth trajectory beyond what is achievable with each REIT’s current focus on a single asset class,” says Teo Swee Lian, chairman of the manager of CMT.

Soo Kok Leng, chairman of the manager of CCT, notes that around 29% of the combined portfolio value of the two REITs already features integrated retail and office components, including Raffles City Singapore, which is co-owned by CMT and CCT.

“It is therefore a logical progression for both REITs to come together as one entity to more efficiently capture additional growth opportunities over the long term,” Soo says. “Our complementary skill sets will strengthen the ability of the merged entity to capitalise on future growth opportunities.”

The REIT manager note that, on a pro forma basis, FY2019 distribution per unit (DPU) would have increased by 1.6% for CMT, and by 6.5% for CCT.

“The merged entity will have a combined property value almost double that of CMT’s, and a 75% larger market capitalisation from where we are today,” says Tony Tan, CEO of the CMT manager. “With a more balanced exposure across retail, office and integrated developments; reduced asset concentration risk; and a well-diversified tenant base, the merged entity can offer greater stability through market cycles.”

“While Singapore remains the predominant focus, the merged entity can undertake overseas acquisitions in developed countries of up to 20% of property value or $4.6 billion,” Tan adds. “Our capital can thus be efficiently deployed to where we see the best risk-return opportunities across asset classes and markets.”

“With an enlarged balance sheet and a higher debt headroom, we will have greater financial flexibility to power our organic and inorganic growth through more proactive asset enhancements and larger investments,” says Kevin Chee, CEO of the CCT manager.

“With greater funding capacity, we can also act more swiftly and provide certainty of financing for third-party acquisitions,” he adds.

The proposed merger is subject to the approval by unitholders of CMT and CCT at the respective extraordinary general meetings to be convened, the approval by unitholders of CCT at a scheme meeting, as well as regulatory and other third party approvals.

After obtaining the necessary approvals, the proposed merger is expected to be completed before the end of 2Q 2020. Thereafter, CCT will become a wholly owned sub-trust of CMT and will be delisted from the Singapore Exchange.

JP Morgan (SEA) and Credit Suisse (Singapore) are the financial advisers to the managers of CMT and CCT respectively for the proposed merger.

Units in CMT and CCT last closed at $2.59 and $2.13 respectively on Tuesday.