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.

"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.

The manager of MNACT said the rationale and terms of the proposed merger had been carefully considered and it continued to believe those to be beneficial to unitholders from a strategic and financial perspective.

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.

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 and 38.1% of MNACT 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, marking a rare victory for activist funds in the city-state.

($1 = 1.3425 Singapore dollars)