14 Nov 2019

Activist Fund Says Singapore’s Sabana, ESR

REITs Should Merge
 Quarz Capital releases open letter to Sabana management
 REIT consolidation in city-state has been gathering pace

(Bloomberg) – 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

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 14 Nov 2019

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 were trading Thursday at S$0.455 while units in ESR-REIT were at S$0.520.

Katrina Nicholas, Abhishek Vishnoi and Faris Mokhtar

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