Activist shareholder Quarz opposes terms of $3 bln Singapore REIT merger

Mapletree Pan Asia Commercial Trust

10/02/2022 10:36

(Adds share price in sixth paragraph, comments in para 10)
    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.
    "We note that Quarz acknowledges the deal rationale...and
sees value in MNACT," the manager of MCT said in a response to
Reuters, but did not elaborate. It said the "merits" of the
proposal were made in its joint announcement with MNACT.
    An external spokesperson for MNACT said the company had no
immediate comment on Reuters queries.
    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. This marked the
first time the units traded above MCT's offer price of S$1.11
since Jan. 3 when markets resumed trading after the proposed
deal was announced on Dec 31.  urn:newsml:reuters.com:*:nFWN2TF0H3    
    Singapore state investor Temasek declined to comment to a
Reuters query. 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  MAPE.SI  as of Dec. 29.
    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.
    MNACT's main portfolio includes one commercial property in
Hong Kong and two in China, while MCT is a Singapore-focused
REIT.
    "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 and are
looking to step up our engagement with unitholders through
further publications," Jan Moermann, chief investment officer at
Quarz, said in a response to Reuters. 
    Quarz, which is run by Moermann, a former Swiss banker, 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 8% to S$1.84 as of
Thursday's close.
    Quarz argued in the letter that the offer price represented
one of the "highest discounts to net asset value in the 20-year
history of the Singapore REIT market with multiple takeovers and
mergers."
    "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 ," Quarz said.
    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.
    Founded in 2011, Quarz has publicly campaigned against about
a dozen Singapore-listed firms.
    It 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 , marking a rare victory
for activist funds in the city-state.
 ($1 = 1.3425 Singapore dollars)

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