CapitaLand Mall Trust and CapitaLand Commercial Trust Proposed Merger: What It Means for Investors

Two CapitaLand Limited (SGX: C31) entities — CapitaLand Mall Trust (SGX: C38U) and CapitaLand Commercial Trust (SGX: C61U) — are looking to merge.

This follows hot on the heels of another proposed merger between Frasers Logistics & Industrial Trust (SGX: BUOU) and Frasers Commercial Trust (SGX: ND8U).

What should investors make of the latest news? Let’s dig in more.

TL;DR: Merger of Two CapitaLand REITs 

Some key highlights from the proposed merger:

• The merger will be carried out by CapitaLand Mall Trust acquiring all CapitaLand Commercial Trust units by way of a trust scheme of arrangement.
• For every 1 CapitaLand Commercial Trust unit held, the unitholder will receive 0.72 unit in CapitaLand Mall Trust and S$0.259 in cash.
• The combined entity, CapitaLand Integrated Commercial Trust, is expected to be the third-largest REIT in the Asia Pacific region and the largest REIT in Singapore with a property value of S$22.9 billion.
• There are many benefits to the merger, including higher distribution per unit for both CapitaLand Mall Trust and CapitaLand Commercial Trust unitholders, assuming the merger was completed by 31 December 2019.
• The proposed merger is subject to approvals and is expected to be completed by June 2020.

What’s The Deal About?

CapitaLand Mall Trust and CapitaLand Commercial Trust are looking to merge to create a diversified commercial real estate investment trust (REIT) to be called CapitaLand Integrated Commercial Trust.

CapitaLand Mall Trust is the biggest shopping mall owner in Singapore with 15 shopping centres while CapitaLand Commercial Trust owns 10 commercial properties in Singapore and Germany.

The combined entity, CapitaLand Integrated Commercial Trust, is expected to be the third-largest REIT in the Asia Pacific region and the largest REIT in Singapore with a property value of S$22.9 billion and a combined market capitalisation of S$16.8 billion.

The merger will be carried out by CapitaLand Mall Trust acquiring all CapitaLand Commercial Trust units by way of a trust scheme of arrangement.

The deal comprises S$999.1 million in cash and 2,777.5 million new CapitaLand Mall Trust units issued at a price of S$2.59 each. This works out to a cool S$8.19 billion.

CapitaLand Limited will retain its sponsor stake of around 29.1% in the merged REIT.

What Happens If I Own CapitaLand Commercial Trust Units Right Now?

If the trust scheme going through and you are a CapitaLand Commercial Trust unitholder, you will receive units in CapitaLand Mall Trust and some cash.

For every 1 CapitaLand Commercial Trust unit held, the unitholder will receive 0.72 unit in CapitaLand Mall Trust and S$0.259 in cash.

In terms of absolute cash amount, at CapitaLand Mall Trust’s unit price of S$2.59, each CapitaLand Commercial Trust unit will be entitled to S$2.1238.

For instance, if you own 1,000 units in CapitaLand Commercial Trust, you will get 720 CapitaLand Mall Trust units and S$259 in cash. In terms of how much you will receive in all, it would be S$2,123.80.

What Happens If I Own CapitaLand Mall Trust Units Right Now?

If the trust scheme going through and you are a CapitaLand Mall Trust unitholder, nothing happens to the number of units held by you.

However, your holdings in CapitaLand Mall Trust will now contain properties that were previously held by CapitaLand Commercial Trust.

What Are the Benefits of the Merger?

There are many benefits of the merger between CapitaLand Mall Trust and CapitaLand Commercial Trust.

The main benefit is that CapitaLand Mall Trust will be diversified further to include office properties and integrated developments.

Integrated developments include Raffles City Singapore (owned by both REITs now), CapitaSpring (owned by CapitaLand Commercial Trust), and Plaza Singapura, The Atrium@Orchard, and Funan (owned by CapitaLand Mall Trust).

CapitaLand Integrated Commercial Trust’s property value by asset class will consist of office (38%), retail (33%), and integrated developments (29%).

The combined REIT will also have greater financial flexibility that will strengthen its position to take on larger projects that would not have been possible as otherwise. CapitaLand Integrated Commercial Trust would be able to take on overseas acquisitions of up to S$4.6 billion in developed countries while remaining mainly Singapore-focused.

Another benefit is that the proposed merger would have increased distribution per unit (DPU) for both CapitaLand Mall Trust and CapitaLand Commercial Trust unitholders by 1.6% and 6.5%, respectively, assuming the merger was completed by 31 December 2019.

The following summarises the benefits of the proposed merger for both CapitaLand Mall Trust and CapitaLand Commercial Trust unitholders:

Timeline of the Merger

A final thing to note is that the trust scheme will require the sanction of the Singapore High Court and approval from both CapitaLand Mall Trust and CapitaLand Commercial Trust unitholders, among other things.

After receiving the necessary approvals, the proposed merger is expected to be completed by June 2020.

Thereafter, CapitaLand Commercial Trust will become a wholly-owned sub-trust of CapitaLand Mall Trust and will be delisted from the Singapore stock market.

The following is an indicative timeline of the whole process:

What to Make of the Deal

I feel this proposed merger is a good deal for both CapitaLand Mall Trust and CapitaLand Commercial Trust unitholders.

The combined REIT will have a bigger financial clout to take on deals on a larger scale. It will also instantly diversify the portfolio to include other assets classes that would be slightly more resilient to market cycles.

As a CapitaLand Mall Trust unitholder, I can benefit from the possibility of higher income contribution from CapitaLand Commercial Trust’s refurbishment of Six Battery Road and 21 Collyer Quay properties.

There’s also the contribution from CapitaSpring to look forward to from 2022. CapitaLand Commercial Trust has a 45% interest in the currently-under-development CapitaSpring.

What Are Your Thoughts?

Is the proposed merger between CapitaLand Mall Trust and CapitaLand Commercial Trust a good deal for you?

You can discuss your thoughts below with fellow unitholders:

Disclaimer: The information provided by Seedly serves as an educational piece and is not intended to be personalised investment advice. ​Readers should always do their own due diligence and consider their financial goals before investing in any stock.