A Mapletree logo is pictured in its office in Singapore March 4, 2013.
A Mapletree logo is pictured in its office in Singapore March 4, 2013. Reuters / Edgar Su

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 .

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 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.

"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.

($1 = 1.3425 Singapore dollars)