Activist shareholder Quarz objects to terms of $3 bln Singapore REIT merger (updated)

Mapletree Pan Asia Commercial Trust

11/02/2022 03:31

(Adds response from analyst in 4, 17 paragraphs)
    By Anshuman Daga
    SINGAPORE, Feb 10 (Reuters) - Activist investor Quarz
Capital Management said it is opposed to the terms of a proposed
S$4.2 billion ($3.1 billion) merger of two Temasek-linked
Singapore real estate investment trusts, saying the target firm
was significantly undervalued.
    It is urging Mapletree North Asia Commercial Trust (MNACT)
to negotiate an improved offer from Mapletree Commercial Trust
(MCT), according to a Feb. 9 open letter reviewed by Reuters.
    Quarz, which has previously been successful in blocking a
Singapore REIT deal, says it and its affiliates hold stakes that
rank them among the top 10 unitholders of MNACT  MAPE.SI .
    In a report published on research platform Smartkarma on
Friday, analyst Travis Lundy said Quarz had provided many
statements in its letter about how things would change on the
MNACT side once the COVID-19 pandemic ended but had not
addressed the impact on MCT  MACT.SI  .
    MNACT's main portfolio includes one commercial property in
Hong Kong and two in China, while MCT is a Singapore-focused
REIT.
    On Thursday, MNACT's units were down 1.8% before the Reuters
story and ended up 0.9% on the day at S$1.12. On Friday, MNACT's
units traded 1.8% lower.
    "We note that Quarz acknowledges the deal rationale...and
sees value in MNACT," MCT's manager said in a response to
Reuters, but did not elaborate.
    MNACT's manager said it continued to believe that the
rationale and terms of the proposed merger were beneficial to
unitholders from a strategic and financial perspective.
    Singapore state investor Temasek declined comment. Its
Mapletree Investments Pte Ltd, a global real estate
conglomerate, is the single largest unitholder in both real
estate investment trusts (REITs), owning 32.6% of MCT  MACT.SI 
and 38.1% of MNACT as of Dec. 29.
    On Dec. 31, MCT had announced plans to buy MNACT, seeking to
create the seventh-largest REIT in Asia with an expected market
valuation of about S$10.5 billion.  urn:newsml:reuters.com:*:nFWN2TF0H3
    "We have received a substantial number of positive responses
from MNACT unitholders who are institutional investors, family
offices and retail investors since the open letter," Jan
Moermann, chief investment officer at Quarz, said in a response
to Reuters. 
    Quarz said in the letter that it supports the deal rationale
but objects to the merger ratio and price.
    "We agree that the offer is value destructive to unitholders
and significantly undervalues MNACT," Moermann and Havard Chi,
Quarz's Singapore-based research head, said in the letter.
    MCT offered to acquire all units of MNACT in exchange for
MCT units, or a combination of both cash and MCT units that gave
the target's unitholders S$1.1949 per unit.
    This represented a 7.6% premium to MNACT's Dec. 27 closing
price of S$1.11 and was based on MCT's unitprice of S$2. The
companies said the offer was in line with MNACT's net asset
value (NAV) per unit. 
    Since then, MCT's units have fallen 9% to trade at S$1.82 on
Friday.
    "It appears that many Singaporean holders of MCT are
thinking that a merger with MNACT would be a quality downgrade,"
said Lundy.
    Quarz said "MNACT's board and management should initiate a
transparent and robust process to sell the assets above NAV of
S$1.23 instead of recommending the suboptimal offer of
S$1.08-S$1.10 from MCT."
    It added it was confident MNACT would stage a strong
recovery from the second half of 2022, citing rising global
COVID-19 vaccination rates.
    Singapore's REIT market is dominated by retail investors who
are attracted to the high dividends paid by trusts as the firms
are mandated to pay out 90% of their rental income.
    Quarz mustered support to block a merger in 2020 between two
Singapore REITs, whose managers are owned by a unit of Asian
logistics giant ESR Cayman Ltd  1821.HK .
 ($1 = 1.3425 Singapore dollars)

 (Reporting by Anshuman Daga; Editing by Edwina Gibbs, Kim
Coghill and Frances Kerry)
 ((anshuman.daga@tr.com;))