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Why I am against the Mapletree Commercial Trust Merger

Why I am against the Mapletree Commercial Trust merger

Make your vote count

First off, it appears that many unitholders somehow hold the defeatist mentality that voting is futile (sounds familiar?), because this is likely a done deal. But this cannot be further from reality. The Sponsor (which holds 32.61% of units) will have to abstain from voting on the merger, thus the outcome of this will be decided by both institutional and retail investor alike – yes, people like you and me. For Resolutions 1, 2 and 3, only a simple majority (>50%) is required to pass the resolutions, so it is really up in the air and could go either way. Therefore, remember to fill up your voting forms (that you should have received by mail) and vote for what you want! I love direct democracy!

Increased leverage, increased risk

MCT’s current leverage stands at ~33%, which is very safe and reasonable in my view. If the merger goes through, leverage rises up to 39.2%. This potentially increases risk especially going into a rising interest rate environment. MCT unitholders would have to weigh this sizeable increase in leverage against the pro forma benefits of the increased DPU and NAV. Personally, I don’t think this is worth it. I rather MCT stays with lower leverage at the moment.

Growth abroad – is this really necessary?

One of the reasons cited for the merger is that there are more opportunities for growth abroad. While this statement itself is valid, MCT shareholders would have to question whether there are indeed greener pastures overseas. Sticking to a Singapore mandate has its benefits, with best in class assets such as MBC I & II and VivoCity. Singapore has largely been a safe haven for capital amid the pandemic and Singapore real estate is a preferred choice for many of the wealthy. In my view, SG real estate will continue to do well.

Most importantly, MCT has been growing its DPU and NAV steadily over the years, even without overseas exposure. One would have to be aware of potential issues with overseas properties – MNACT’s Festival Walk was damaged by protestors a few years back, and China’s zero covid policy is also a headwind for MNACT’s China based assets.

Huge potential of the Greater Southern Waterfront

MCT is well poised to benefit from the development of the GSW over the next decade – tens of thousands of private condos and HDBs will be developed, and MCT currently has the best in class assets in the area. MBC, mTower and Vivo are all well positioned right beside MRT stations with great connectivity. I cannot imagine Vivo becoming any more crowded than it already is, but that looks like the reality in the future. 

Additionally, the Sponsor still owns more properties along the GSW that MCT can acquire in the future. If MCT does not merge with MNACT, MCT can focus on growth in Singapore with its ample debt headroom, if necessary.

In conclusion, I am against the merger. Don’t get me wrong, MNACT is still a good stock as Quarz Capital had rightly pointed out. But I rather MCT and MNACT be kept separate, as they cater to different profiles of investors – MCT for those seeking stability in Singapore, while MNACT caters to those seeking growth in foreign markets and are willing to potentially take on greater risk. I would rather investors have the choice to invest in either, and not merge them into one.

Remember to make your vote count, and let’s make history!