“We are aware of recent market speculation. As a matter of policy, CLI does not comment on rumours or speculation. Should there be any matters requiring disclosure, CLI will make the announcements in accordance with the Listing Manual of the SGX-ST.”
Analysts reckon that such a transaction would excite the market, and they are likely to estimate and guesstimate the different permutations and combinations of such a transaction.
Xavier Lee, an analyst at Morningstar, says if CLI and Mapletree Investments were to merge, the REITs managed by both entities are likely to consolidate to mitigate potential conflicts of interest.
Concerns about overlap and dilution
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“Likely candidates for merger include Mapletree Industrial Trust with CapitaLand Ascendas REIT, or CapitaLand Integrated Commercial Trust (CICT) with Mapletree Pan Asia Commercial Trust (MPACT), given their overlapping asset classes. That said, REIT mergers are often complex and may face resistance from minority unitholders due to concerns around valuation, DPU dilution, and portfolio composition,” Lee observes.
JP Morgan says, subject to acquisition multiples, it also sees “challenges to consummating such a deal given the risk of ROE dilution, the overhang from a potential equity raising, questions as to whether it enhances CLI’s private fund business and the risk of jeopardising CLI’s successful listed REIT business”.
A scenario that would likely be more palatable for CLI shareholders would be simply acquiring Mapletree Investments’ fund management business at an attractive multiple to allow EPS accretion and to account for potential outflows in Mapletree Investments’ private fund business, as well as the avoidance of any writedowns in Mapletree Investments’ investment properties and development projects, JP Morgan suggests.
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DBS says a sizeable part of Mapletree Investment’s $70 billion assets under management (AUM) comprises balance sheet and development projects. As such, both CLI and CapitaLand Development are likely to be involved in the merger should there be any truth in the current merger talk.
If the ultimate goal is to achieve scale, CLI will achieve its long-stated $200 billion AUM target, adds DBS. “Given its larger scale, it will be positive for the stock, especially when it is trading at 1 time P/B vs Keppel, which is at 1.4 times P/B,” DBS says.
Amongst the REITs, there will be a second-order impact as these are independently run and managed, and have their own investors who will be able to vote on any transaction if it is to be done via a scheme of arrangement.
“It is clear MPACT, if it is going to merge with CICT, will be acquired at NAV of $1.80,” DBS adds.
Permutations and combinations
But will MPACT be acquired at NAV, or will it be broken up?
While DBS is of the view that MPACT is the main beneficiary, given that it is trading below its NAV, CICT’s independent unitholders may not vote for the merger. After all, MPACT’s North Asian assets — Gateway Plaza, Sandhill Plaza and Festival Walk — have proved challenging for Mapletree Commercial Trust, Mapletree North Asian Commercial Trust, and currently MPACT.
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Moreover, CICT’s manager has articulated that it prefers not to expand overseas at present to focus on Singapore, where the REIT acquired 50% of ION Orchard in October 2024 and the 55% of CapitaSpring it did not own in August this year.
“MPACT’s quality Singapore assets, VivoCity and business parks, will be great additions,” notes the DBS report.
Analysts have differing views. “From our discussions, CICT investors would only be interested in acquiring VivoCity, but MPACT unitholders may be unwilling to sell their crown jewel,” JP Morgan observes.
DBS acknowledges that MPACT’s North Asian assets are its main “earnings drag over the past years due to northern-bound retail leakage for Hong Kong retail mall Festival Walk, and supply/rental side constraints for China and Japan assets”. CICT’s independent unitholders would be loath to lose their REIT’s “pure-play” Singapore status, which in itself gives CICT a premium.
More RMB funds?
Of course, MPACT could divest its North Asian assets before the merger, if it materialises. It may be easier to divest Gateway Plaza (Beijing) and Sandhill Plaza (Shanghai) into new income funds or one of CLI’s China funds. CLI has a China Business Park RMB Fund III, focusing on investing in business parks in China, such as the Ascendas iHub Suzhou. In May this year, CLI established an RMB5 billion ($915.8 million) onshore master fund in partnership with a major domestic insurer. This fund is expected to contribute RMB20 billion to CLI’s funds under management when fully deployed.
According to another analyst who covers CLI and the various Mapletree-sponsored REITs, talk of such a deal is not new. “Mapletree has been facing challenges from its overseas markets and in our view, may be more open to such a merger,” the analyst says.
He adds that with CLI’s ambitious $200 billion AUM target and need for a major share price catalyst, there could be an urgency to get this deal done. “Overall, we believe if a merger happens, it is likely to be a positive catalyst for CLI’s share price, although the upside will largely depend on final deal metrics,” says the analyst.
On the industrial property and data centre front, CapitaLand Ascendas REIT’s (CLAR) unitholders may not want to subsume Mapletree Industrial Trust (MINT) and Mapletree Logistics Trust (MLT).
Of course, MLT’s China warehouses could be offered to CapitaLand China Trust, and/or combined with CLCT’s warehouses to be listed separately as a C-REIT at a future date. In the meantime, they could be divested into an RMB income fund. During a recent results briefing, MLT’s manager revealed it is mulling over divesting the Chinese warehouses into a Mapletree-sponsored fund at book valuation.
CLAR and MINT’s Singapore-focused industrial assets could merge, with a potential dedicated data centre REIT being formed, JP Morgan suggests. “We believe CLAR’s unitholders would likely reject being burdened with MINT’s US data centre vacancies,” JP Morgan points out. The North American data centres account for 47.2% of MINT’s assets of $8.5 billion.
Lee from Morningstar says: “From CLI’s perspective, a merger with Mapletree Investments would create a formidable international real estate platform with an estimated FUM [funds under management] of $180 billion. This could unlock cost synergies, similar to those achieved during the CapitaLand–Ascendas-Singbridge merger in 2019.
“However, in terms of asset class diversification, the acquisition may offer limited incremental benefit, as CLI already has broad exposure across similar segments. Additionally, Mapletree’s development arm may require restructuring or exclusion from the deal to align with CLI’s asset-light fund management strategy.”
