Analysts from CGS-CIMB Research, the Bank of Singapore (BoS) and OCBC Investment Research are generally positive on Mapletree Commercial Trust (MCT) and Mapletree North Asia Commercial Trust (MNACT) following the introduction of an all-cash option offered to MNACT unitholders.
On March 21, the REIT managers of both MCT and MNACT announced the revision of their existing trust scheme agreement with the addition of a third option – a 100% cash consideration at $1.1949 per MNACT unit. Moving forward, this option will also be the default option.
In order to fund the increase in cash requirement, MCT will undertake a pro-rata non-renounceable preferential offering of up to 1.094 billion MCT units to MCT unitholders at an issue price of $2.0039 to raise gross proceeds of up to $2.2 billion. The $417.3 million that remains will be funded via perpetual securities and/or debt funding.
On this, CGS-CIMB analysts Lock Mun Yee and Eing Kar Mei are keeping their “add” call on MCT with an unchanged target price of $2.18.
"The cash-only option values MNACT fairly at 1x P/NAV versus scrip and scrip plus cash options which value MNACT at 0.94x – 0.95x P/NAV, based on MCT’s last closing price," say Lock and Eing in their March 21 report. The cash-only option also values MNACT higher than its five-year historical P/NAV of 0.8x, they note.
In addition, the analysts are buoyant on the strong commitment from Mapletree Investment (MIPL), which is the sponsor of both MCT and MNACT. As the introduction of the cash-only option will mean a higher cash requirement, this will be funded by the preferential offering, where MIPL has undertaken to subscribe for the maximum preferential offering units of up to $2.2 billion.
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Despite the all-cash offer, CGS-CIMB’s Lock and Eing see the deal as being immediately accretive to MCT’s distribution per unit (DPU) and net asset value (NAV), with it being unchanged compared to the original terms.
“While some favour MCT as a pure Singapore play, the acquisition will help to accelerate the growth prospects of the merged entity. While free-float size would be reduced in the cash-only consideration [compared] with scrip considerations, the merged entity will have a free float size equivalent to or greater than MCT’s and will still be one of the top five largest Singapore REITs (S-REITs) in free float size,” write the analysts.
Following the merger, Lock and Eing see that Singapore will remain a core market to provide underlying portfolio stability while South Korea and China would be the focus of expansion.
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“In Hong Kong, focus will be on improving Festival Walk which remains a quality mall, [while] in Japan, there is opportunity to recycle capital as it becomes a relatively small segment of the merged portfolio,” say the analysts. “Office and office-like business park assets will be the asset class in focus.”
The research team at the Bank of Singapore (BoS) has also kept their “buy” rating on MCT with a target price of $2.04.
“With the addition of an all-cash consideration option for MNACT unitholders, we see higher chances of this proposed merger going through, and continue to recommend MCT unitholders to vote in favour of the trust scheme,” says the team. “If successful, the merged entity would become one of the largest REITs by market capitalisation listed in Asia, with a significantly larger scale and platform which is better positioned to unlock upside potential.”
“That said, we believe MCT would gain new exposure to riskier markets and see dilution to its pure-play Singapore status,” they add.
Despite the current macroeconomic and industry headwinds from the Covid-19 pandemic, the BoS team says it sees “signs of recovery and believes MCT’s “strong parentage and healthy balance sheet will allow it to tide over near-term uncertainties”. The REIT’s strong management team are also “well-positioned” over the longer term, adds the team.
Finally, UOB Kay Hian analyst Jonathan Koh is keeping his “buy” recommendation and target price of $2.48. Like the rest of the analysts, Koh has noted the flexibility offered to MNACT unitholders, as well as the preferential offering that is fully backed by the REITs’ sponsor.
As the pro forma financial impact remains unchanged, Koh has kept his DPU forecast for MCT the same.
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Catalysts, in his view, are the DPU and NAV accretion from MCT’s merger with MNACT. MCT’s five properties in the HarbourFront area, which account for 91.5% of MCT’s total assets under management (AUM), will “benefit immensely” from the redevelopment of the Greater Southern Waterfront area, as well as the rejuvenation of Sentosa Island and Pulau Brani.
Only sell MNACT in open market if price goes above $1.19: OCBC analysts
The team at OCBC Investment Research (OIR) has kept their “hold” rating on MNACT with a target price of $1.06.
To them, the revision of the trust scheme is a boost to unitholders in MNACT, and affords them more flexibility.
To this end, the team recommends MNACT’s unitholders to consider selling their units in the open market if MNACT’s unit price goes above $1.19, or vote for the 100% cash consideration option, especially for more conservative investors.
The team adds that it expects to see a recovery in MNACT in the FY2022 as it emerges from the headwinds from the pandemic and macroeconomic uncertainties that adversely impacted the REIT’s performance in FY2021. That said, this recovery will likely suffer a setback given the ongoing fifth Covid-19 wave in Hong Kong.
As at 11.27am, units in MCT are trading flat at $1.87 at an FY2022 P/B of 1.11x and dividend yield of 5.16%, according to CGS-CIMB’s estimates.
Units in MNACT are trading flat at $1.22 with an FY2022 P/NAV of 0.9x and DPU yield of 6.1%, according to OIR’s estimates.
