ESR-Reit will not raise offer price for Sabana in proposed merger

ESR-REIT does not intend to increase the scheme consideration for its proposed merger with Sabana Shari'ah Compliant Industrial Real Estate Investment Trust (Sabana Reit), its manager said in a bourse filing on Thursday.

Accordingly, the exchange ratio of 0.940 ESR-Reit units to one Sabana Reit unit is final, it added.

ESR-Reit's manager will not be allowed to subsequently increase the scheme consideration in any way, save that it reserves its right to do so in a competitive situation, it said.

ESR-Reit's statement comes after activist fund Quarz Capital Management last week criticised the offer price as "too low".

"Unless the management of Sabana Reit's manager shows that they are willing to sell their personal properties at a 25 per cent discount to valuation, we are puzzled why they would propose to merge Sabana Reit at a 25 per cent discount to book value," Quarz had said.

Sabana Reit's manager on Wednesday clarified that the proposed merger was not an asset sale. It also pointed out that the Reit had consistently traded at a discount to its net asset value (NAV) in recent years.

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While NAV "may be a pertinent metric in an asset sale", it is important to consider other factors in the context of a 100 per cent unit swap between two listed entities, Sabana Reit's manager said.

They include trading unit prices and the corresponding exchange ratio, pro forma dividend per unit (DPU) accretion, the ability to leverage benefits of scale, enhancements to portfolio resilience and diversification, and other potential upsides not available in an asset sale.

Sabana Reit's manager said the agreed exchange ratio is at a 4 per cent premium to the exchange ratio implied by the volume-weighted average price of Sabana Reit units for the one-month period up to July 15, which is the last trading day before the date the proposed merger was announced.

The pro forma DPU accretion of 12.9 per cent for Sabana Reit unitholders, on a H1 2020 annualised adjusted basis, will be "the highest in the history of S-Reit mergers", it added.

Quarz on Wednesday responded that it was "appalled" at the manager's "persistent defence of a proposed transaction which clearly undervalues Sabana units and is suboptimal to unitholders it has a fiduciary duty to".

Units of Sabana Reit ended Wednesday flat at 38 Singapore cents, while units of ESR-Reit closed at 38 cents, down 0.5 cent or 1.3 per cent.