Activist Fund Quarz Says Singapores Sabana, ESR-REIT Should Merge

Sabana Shari’ah Compliant Industrial REIT and ESR-REIT, two Singapore-listed real estate investment trusts, are being urged to merge by activist fund Quarz Capital Management Ltd.

Quarz began buying into Sabana REIT in 2018 and controls around 4% to 5% of the firm, Chief Investment Officer Jan Moermann said.

In an open letter to Sabana REIT released Thursday and obtained by Bloomberg News, Quarz said the pair, which share a common investor in Hong Kong-listed ESR Cayman Ltd., should merge to solve the issue of overlapping investment mandates between the two trusts, which may have corporate governance implications.

“We are not convinced by ESR’s argument that they are able to clearly manage Sabana and ESR REITs independently,” the letter said. “As a recently listed company in Hong Kong, ESR has a fiduciary duty to enhance the value of its shareholders, which translates to ensuring that the value of its stakes in both ESR and Sabana REITs are maximized.”

Sabana REIT declined to comment. ESR-REIT didn’t immediately respond to a request for comment.

It’s not the first time Quarz has angled for REIT consolidation in Singapore.

In April, it said Ascendas Hospitality Trust and Ascott Residence Trust should join forces to boost shareholder value and avoid potential conflicts after a separate deal that saw CapitaLand Ltd. gain ownership of the managers of both REITs.

That merger subsequently transpired, with Ascott Residence announcing its intention to acquire Ascendas Hospitality Trust in July. The transaction is expected to complete at the end of this year.

Wave of Deals

There has been a wave of REIT tie-ups in Singapore. Earlier this year, OUE Commercial REIT agreed to buy OUE Hospitality Trust. In 2018, ESR-REIT and Viva Industrial Trust merged to create a larger logistics trust. In January, CapitaLand struck a S$6 billion ($4.4 billion) deal to buy Temasek Holdings Pte units Ascendas Pte and Singbridge Pte.

Quarz is proposing that ESR-REIT merge with Sabana REIT in a cash and unit transaction where 0.92 units of the former and S$0.067 cash would be exchanged for one unit of Sabana REIT, giving a value of about S$0.545 per unit.

For Sabana REIT unitholders, the potential offer provides a takeover premium of about 21%, Moermann said.

“The two REITs primarily invest in the Singapore industrial sector, which is limited in size and transactions,” the letter said. “Undoubtedly, both might tender for the same assets. As ESR’s stake in ESR-REIT has a substantially larger value versus the stake in Sabana, this can potentially create corporate governance concerns on which REIT should have priority. It would be clearly inequitable to Sabana’s minority unitholders if the REIT is forced to invest out of Singapore such that ESR can mitigate this issue.”

Units in Sabana REIT rose 2.2% Thursday, the most in three weeks, to S$0.460 while units in ESR-REIT increased 1.9%, the most since Sept. 19, to S$0.530.

Bloomberg