By Anshuman Daga

SINGAPORE (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.

An external spokesperson for MNACT and MCT said they had no immediate comment on Reuters queries.

Singapore state investor Temasek declined to 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 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.

Quarz, which is run by Jan Moermann, a former Swiss banker, said it supports the deal rationale but objects to the merger ratio and price.

“Quarz has been approached by many MNACT unitholders on MCT’s inferior offer for MNACT. 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 unit price 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 8.5% to S$1.83 as of Wednesday’s close, while MNACT’s were unchanged at S$1.1.

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 global 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)

(Reporting by Anshuman Daga; Editing by Edwina Gibbs)