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Singapore, 22 January 2020 – CapitaLand Mall Trust Management Limited (CMTML) and CapitaLand Commercial Trust Management Limited (CCTML), the respective managers of CapitaLand Mall Trust (CMT) and CapitaLand Commercial Trust (CCT), today jointly announced the proposed merger of CMT and CCT (the Proposed Merger) to create a diversified commercial real estate investment trust (REIT) to be named “CapitaLand Integrated Commercial Trust” (CICT or merged entity). CICT is expected to be the third largest REIT in Asia Pacific (APAC) and the largest REIT in Singapore, with a market capitalisation of S$16.8 billion2 and a combined property value of S$22.9 billion1.
The Proposed Merger will be effected by way of a trust scheme of arrangement, with CMT acquiring all units of CCT (CCT Units) for a total consideration comprising approximately 88% in new units in CMT (CMT Units) and 12% in cash. The consideration per CCT Unit comprises 0.720 new CMT Units and S$0.2590 in cash. This implies a gross exchange ratio of 0.820. Following the Proposed Merger, CapitaLand Limited will retain its sponsor stake of approximately 29.1%3 in the merged entity.
CICT brings together CMT’s portfolio of 15 downtown and suburban malls in Singapore with CCT’s portfolio of 10 prime office assets – eight in Singapore and two in Frankfurt, Germany. It will become the largest proxy for Singapore commercial real estate with a portfolio of 244 properties valued at S$22.9 billion1, of which 96% of this value are assets located in Singapore.
Ms Teo Swee Lian, Chairman of CMTML, said: “As the respective best-in-class players in retail and office with proven track records in value creation, 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. We are excited about the prospects for our future and the growth we can deliver for our combined group of unitholders, many of whom already hold stakes in both REITs today.”
Mr Soo Kok Leng, Chairman of CCTML, said: “The Proposed Merger is a win-win for both CMT and CCT. Our complementary skill sets will strengthen the ability of the merged entity to capitalise on future growth opportunities as commercial development trends towards mixed-use integrating work-live-play offerings. As of today, about 29% of the combined portfolio value of the two REITs already features integrated retail and office components. This includes 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.”
Mr Tony Tan, CEO of CMTML, said: “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. On a pro forma basis, FY 2019 distribution per unit would have increased by 1.6%. 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. In addition, while Singapore remains the predominant focus, the merged entity can undertake overseas acquisitions in developed countries of up to 20% of property value or S$4.6 billion. Our capital can thus be efficiently deployed to where we see the best risk-return opportunities across asset classes and markets.”
Mr Kevin Chee, CEO of CCTML, said: “The Proposed Merger is a new milestone in the development of CCT, having grown over the years through proactive portfolio reconstitution and developments. The benefits of a larger and more diversified asset base under the merged entity are manifold and immediate. On a pro forma basis, FY 2019 distribution per unit for CCT unitholders would have grown by 6.5%. 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. With greater funding capacity, we can also act more swiftly and provide certainty of financing for third-party acquisitions.”
“As the respective best-in-class players in retail and office with proven track records in value creation, 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. We are excited about the prospects for our future and the growth we can deliver for our combined group of unitholders, many of whom already hold stakes in both REITs today.”
Rationale and benefits to unitholders
1. Leadership: Best-in-class commercial REIT platform with leading scale and efficiency
CICT will be the proxy for Singapore commercial real estate with a high-quality portfolio of 24 income producing assets used predominantly for retail and office. Its balanced portfolio comprises eight office assets, 11 retail assets and five integrated developments, which account for approximately 38%, 33% and 29% of the total property value respectively.
CICT is expected to be the largest REIT in Singapore and the third largest REIT in APAC. As a result, it will enjoy greater visibility among the investment community, which may help to drive higher trading liquidity with the potential for positive re-rating.
2. Growth: Higher growth potential with larger capacity and broader investment mandate
CICT will have enhanced capacity to take on larger investments across markets and be better positioned to leverage future real estate trends. The greater financial flexibility will strengthen its position to take on large-scale integrated developments that the standalone entities would otherwise not be able to. An example is Raffles City Singapore5, currently held by both CMT and CCT.
CICT will be able to capitalise on combined domain expertise, with CMT and CCT’s proven track record in repositioning their respective portfolios. In addition, CICT may take on overseas acquisitions of up to S$4.6 billion in developed countries (assuming 20% of its portfolio property value) while remaining predominantly Singapore focused.
3. Resilience: Enhanced resilience and stability through market cycles
The combination of the blue-chip portfolios from CMT and CCT will lead to a more balanced exposure across office, retail and integrated developments, providing stability for CICT’s overall portfolio performance and income. The combined size and sector diversification also result in a more resilient platform that will improve the merged entity’s ability to invest sustainably through the cycles.
CICT will also enjoy increased flexibility to undertake portfolio rejuvenation and redevelopment with reduced impact on income. Asset concentration risk will also be greatly reduced. In the case of CMT, the net property income contribution of its top five assets will decrease from 51% to 43% post-Proposed Merger. For CCT, the contribution decreases from 83% to 43% post-Proposed Merger.
4. Accretion: DPU accretive to unitholders
On a pro forma basis, the Proposed Merger will be distribution per unit (DPU) accretive for both CMT and CCT unitholders. The FY 2019 pro forma DPU for CMT would have increased 1.6% from 11.97 cents to 12.16 cents and the DPU for CCT would see an accretion of 6.5% from 8.88 cents to 9.46 cents.
The Proposed Merger is subject to the approval by unitholders of CMT and CCT at extraordinary general meetings to be convened by CMT and CCT respectively, the approval by unitholders of CCT at a scheme meeting to be convened by CCT, 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.
Financial and legal advisers
J.P. Morgan (S.E.A.) Limited and Credit Suisse (Singapore) Limited are the financial advisers to the managers of CMT and CCT respectively for the Proposed Merger. Allen and Gledhill LLP and WongPartnership LLP are acting as legal counsels to the managers of CMT and CCT respectively for the Proposed Merger.
1 Based on property value as at 31 December 2019.
2 Illustrative market capitalisation calculated as the sum of (i) the market capitalisation of CMT of S$9.6 billion as at 21 January 2020; (ii) the portion of the Scheme Consideration to be satisfied in new CMT units based on a gross exchange ratio of 0.820; and (iii) the value of the acquisition fee to be issued in new CMT units at S$2.59 per unit.
3 Illustrative unitholding structure based on latest available information as at 21 January 2020.
4 The combined entity will own 100% of Raffles City Singapore.
5 Valued at S$3.38 billion as at 31 December 2019.