14 Nov 2019

Hedge Fund Manager Writes Open Letter to

ESR
SINGAPORE (Nov 14): Quarz Capital Management has written an
open letter to ESR Cayman, the manager and major unitholder of
Sabana Shariah Compliant Industrial Real Estate Investment Trust
asking the manager to take action to narrow the gap between
Sabana REIT’s unit price 45 cents and its net asset value of 56
cents. QCM – run by Chief Investment Officer Jan Moermann and
director of research Havard Chi – manages the Quarz Active Value
Fund which invests in developed Asia and the Quarz Global
Opportunity Fund. The Quarz Active Value Fund has returned 20%
year to date and the Quarz Global Opportunity Fund, a case fund,
is up 60% YTD.

QCM suggests in its open letter that ESR REIT merge with Sabana REIT in a cash and unit transaction where
0.92 units of ESR REIT and 6.7 cents of cash could be exchanged for 1 unit of Sabana REIT for total value of
54.5 cents or 2.7% discount to Sabana REIT’s book value discount to book value.

For Sabana REIT unitholders, this potential offer provides an attractive takeover premium of ~21% and
addresses the persistent discount at which the unit price trades to NAV. ESR REIT unitholders can potentially
benefit from a ~7% jump in DPU (Dividend yield of ~7.1%) post-merger attributed to the optimisation of the
many levers for Sabana REIT’s portfolio which includes the addition of a retail component at 151 Lorong Chuan
post 2Q2020 and optimisation of management fee payments and occupancy rates.

Interestingly, QCM points out that Sabana REIT has more

than 1.3million of untapped GFA which ESR REIT can
capitalise on. Due to the low leverage ratio of Sabana
(30.9%), the combined entity will have around $180 million
of debt headroom to make DPU accretive acquisitions.

“A takeover at $0.545 for Sabana Reit is a win-win for

unitholders and shareholders of Sabana Reit, ESR Reit
and ESR Cayman. The increased scale of the enlarged
entity can lead to the inclusion of the Reit in major Reit
indices and increase global institutional investor following,”
Moermann says.

Sabana REIT closed at 45 cents on Nov 13, and ESR-REIT closed at 52 cents.

Goola Warden – The Edge

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