Sabana Shari'ah REIT

[tonylim]

the Manager may be removed by notice given in writing by the Trustee.........excerpts from the trust deed. If the trustee can remove, isn't it logical to believe he can also hire?  And I don't think that is the normal "jurisdiction and responsibility" of the Trustee.....Maybe, just maybe....you do not know as much as you think you know.  And I am a remisier not a REIT expert.

Who decided which Trustee to warehouse the properties in the reit , know the answer know who has the final say on appointment of manager !

[newyorkcityboy]

the Manager may be removed by notice given in writing by the Trustee.........excerpts from the trust deed. If the trustee can remove, isn't it logical to believe he can also hire?  And I don't think that is the normal "jurisdiction and responsibility" of the Trustee.....Maybe, just maybe....you do not know as much as you think you know.  And I am a remisier not a REIT expert.

Who decided which Trustee to warehouse the properties in the reit , know the answer know who has the final say on appointment of manager !

Some thoughts to share:

1) The Trustee is appointed at the formation of the REIT during IPO by the REIT manager. In terms of Trustee's duties, it is to hold the assets and act in interests of unit-holders. The next steps will involve a lot of legalese. If there is a lawyer in your team, it would help decipher the next steps more easily.

2) Without knowing the details of the portfolio, existing unit-holders must be realistic about expectations on what a replacement team can achieve. First, current market conditions are soft; the industrial market here is oversupplied and demand will not be strong with economic conditions tepid. Also, with the sponsor and main shareholder of the current REIT manager accounting for 17% of income and master leasing three properties on short leases, there is a risk of non renewals for these properties if management rights are lost. It depends on how the value of these properties are expected to fall without a tenant and its corresponding impact on the REIT's NAV (and their 12% stake in the REIT). That's the challenge with little alignment.

3) In terms of a replacement manager, perhaps it may not be a "direct" replacement in terms of finding another REIT manager with a 10 year track record. I expect MAS to apply the criteria to individuals or staff within the REIT manager. So a newly incorporated alternative manager can possibly be put in place if it is helmed by staff which meets MAS' experience requirements. Thus, it is a matter of hiring from a real estate private equity professional to front the new management team. Financial market hiring conditions are soft now so perhaps with the right incentive package, a team could be clobbered together to do the right thing!

[ACTIVIST SPEAKS]

newyorkcityboy...your solution at 3 is exactly what we are proposing with an added feature...it must be internalized.

[ACTIVIST SPEAKS]

We respond briefly to the statements made by Sabana Manager.

a. The Manager explains that DPU dropped from 9.38 cent to 5.01 cent mainly due to the expiry of a number of master leases.

WE BELIEVE that the basis of a competent manager is to anticipate the expiry of master leases and ameliorate such negative effects. The actions of Sabana Manager have indicated otherwise.

b. The Manager explains that the purchase of 47 Changi South Ave 2 at a high price is justified by independent valuation by Savills and Knight Frank, taking into account the long term lease and rental income support. The Manager also tells you that it is not fair to compare current valuation of this property with book value of the property in the Sponsor’s book.

WE BELIEVE for Colliers, Savills and Knight Frank to separately and independently come to a valuation of exactly $23m for a property is too much of a coincidence unless they are using exactly the same inputs provided. We merely stated a fact that this property sits in Vibrant Group’s book at only $9.9m
WE BELIEVE the work done by the Manager in the purchase of this Changi South property is merely administrative in nature, we cannot understand why they are charging $200,000.

c. The Manager explains that the purchase of the 3 properties at 60% -88% higher than Cambridge Industrial Trust’s sale of their Ubi Ave 3 is justified by the independent valuation by Savills and Knight Frank (again). The Manager also highlighted the success and oversubscription of 209% in the recent Rights Issue.

WE BELIEVE that the Manager should let the unitholders decide if indeed these acquisitions are fair and accretive.
WE BELIEVE the Manager should let the unitholders decide whether we should buy a $10m property at $20m just because of a rental support arrangement.
WE BELIEVE when you price your rights at a substantial discount, it is a no brainer that if indeed unitholders do not subscribe, their proportional shareholdings would be substantially diluted.

d. The Manager points out the fee structure charged is consistent with the fee structure adopted by other REIT Manager. The Manager tells you that their interests is aligned with ours because they elected to receive 80% of their fees in Units since IPO.

WE BELIEVE that one should compare one’s performance with the performance of other REIT Managers when one points out one’s fee structure is in line with other REIT Manager.
WE BELIEVE that the Manager’s profit margin is close to 80% as they pointed out they only receive 20% in cash since IPO. And this 20% cash is enough to support their entire operation all these years.


The Manager is correct that we have not assembled a team to take over. When MAS allows 50 minority unitholders to convene a meeting to remove the manager, WE BELIEVE that MAS had not intended for us to look for an alternative manager. Logic will tell you that there is no way MAS will allow a group of unlicensed motley crew decides the fate of a $800m REIT owned by more than 30,000 unitholders. The logical step is for HSBC Trustee to look for the replacement manager (internal or external) with MAS endorsement and approval. The Trust Deed clearly allows the Trustee to remove the Manager under certain conditions. It is logical to assume that if the Trustee has the right to fire, he must also have the right to hire.

The Manager is also correct that removing the Manager may be an event of default under the terms of the outstanding loan facilities. WE BELIEVE this is an issue that the new Manager can solve. The Manager does not own the properties pledged. The REIT’s aggregate leverage ratio is less than 45%. WE BELIEVE this scare tactic is merely a strategy used to entrench them firmly in their appointment as the Manager of Sabana REIT.

Finally, the Manager highlights that in the event of a liquidation under current dire market conditions, the properties will be sold at a substantial discount to fair values. WE BELIEVE when you say things like this, you do not go on and ask unitholders for money to buy three more properties at a substantially higher price, justified by valuation houses, using acceptable desktop valuation methods, calculating with artificially prop up rental support, giving carbon copy valuation. You do not go on operating within the legal framework, practicing widely acceptable measures, acting within codified requirements, making non-criminal decision that eventually cause huge financial loss to tens of thousands of unitholders in a listed REIT.

Mdm Ho Chin, in her speech in 2005, highlighted the perils of a Manager buying an assets at inflated prices and the vendor agreeing to lease back the same property at inflated rents well above market rates. She said the REIT’s investment hurdles are technically met and both the Manager and the vendor can claim to be “winners” in the deal. “The losers are the unitholders” she added. While the Manager may sprain their wrists doing multiple high five with the vendors and valuation houses, the unitholders have to turn to calling this meeting to ”guard against clever financial engineering to disguise inherent blemishes.”

[weijian]

Adding some context to the above post:

Sabana Real Estate Investment Management Pte. Ltd., as manager (the “Manager”) of Sabana Shari’ah Compliant Industrial Real Estate Investment Trust (“Sabana REIT”), wishes to announce that, on 6 February 2017 (“Receipt Date”), it received a letter (the “Requisition Letter”) from 66 unitholders of Sabana REIT (“Requisitioning Unitholders”) representing approximately 0.6% of the total issued units of Sabana REIT (“Units”), requesting the Manager to convene an extraordinary general meeting of Sabana REIT (“EGM”). Annexed to the Requisition Letter was a note written by Mr Low Chin Yee (“Mr Low”), who is one of the Requisitioning Unitholders. The following sets out an extract of the resolutions contained in the Requisition Letter and requested by the Requisitioning Unitholders to be tabled at the EGM to be convened:

“Resolution 1: Removal of Sabana Real Estate Investment Management Pte Ltd as the manager of Sabana Shari’ah Compliant Industrial Real Estate Investment Trust.
Resolution 2: (i) Direct Sabana REIT Trustee to incorporate a new wholly owned subsidiary to replace Sabana Real Estate Investment Management Pte Ltd as the manager for the purpose of internalisation of the manager function. (ii) Direct Sabana REIT trustee to search for qualified candidates to assume the role of directors for the internalised manager.
Resolution 3: Direct the orderly winding-up and/or divestment of all properties portfolio in Sabana Shari’ah Compliant Industrial Real Estate Investment Trust, in the event the newly incorporated subsidiary (specified in Resolution 2(i)) is not approved by the relevant authorities to act as the manager of Sabana Shari’ah Compliant Industrial Real Estate Investment Trust, for whatever reason.
Resolution 4: Direct the orderly winding up of Sabana Shari’ah Compliant Industrial Real Estate Investment Trust, in the event Resolution 1 is not passed.”

A copy of the Requisition Letter and Mr Low’s note is enclosed in Annex 1 of this announcement (“Announcement”) for the sole reference of Unitholders only. The Manager is currently seeking legal advice in connection with the Requisition Notice to assess the validity of the requisition request and to look into the statements made therein. At this juncture, the Manager would respond briefly to some of the statements made in Mr Low’s note, but reserves the right to respond in full later.

http://infopub.sgx.com/Apps?A=COW_CorpAn...lders_.pdf

[yeokiwi]

Finally, the Manager highlights that in the event of a liquidation under current dire market conditions, the properties will be sold at a substantial discount to fair values.

Dec 2016 valuation
http://infopub.sgx.com/FileOpen/20170125...eID=437166

The valuation was done in Dec 2016 and in Feb 2017, the manager expressed doubts over the valuation. So, did the valuators perform a correct valuation?

I am puzzled. In that case, shouldn't the valuators apply discount to the valuation?
I know it will bust their gearing ratio...haha..

I think the valuators should give a month guarantee to the valuations. Within a month after the valuation, the valuators will have to makan the properties at the valuated price if the properties' owners choose to divest. haha.

[tanjm]

Finally, the Manager highlights that in the event of a liquidation under current dire market conditions, the properties will be sold at a substantial discount to fair values.

Dec 2016 valuation
http://infopub.sgx.com/FileOpen/20170125...eID=437166

The valuation was done in Dec 2016 and in Feb 2017, the manager expressed doubts over the valuation. So, did the valuators perform a correct valuation?

I am puzzled. In that case, shouldn't the valuators apply discount to the valuation?
I know it will bust their gearing ratio...haha..

I think the valuators should give a month guarantee to the valuations. Within a month after the valuation, the valuators will have to makan the properties at the valuated price if the properties' owners choose to divest. haha.

Once again, I have no stake in Sabana. My 2 cents worth.

I think I implied it before. If it is so easy to sell the properties at book value, someone would have swooped in long ago. It may be possible to sell near book value, but only if you take the time to market it properly over a period of time. So, taking one point of view, the manager is not wrong (if you are talking about selling the properties within a short time frame).

A quick look tells me book (theoretical) value inclusive of debt is 74 cents per share?

I know you guys are mad with the manager, but here's another (free) idea. Not sure about practicality/legality : have another resolution that (A) suspends all new purchases of property by manager (B) commits the trustee to entertain all reasonable offers in the next 2 years to buy any building within 10% of book value until the building assets in management goes down by say 1/3. You will need to take a haircut to get any decent chance of someone making an offer.

The essence of the idea is that you are not dissolving the trust or displacing the manager, with all the messiness that entails. You need to do your sums carefully though. I note that leverage is 43%.

[YMPL]

I don't know the detail of the effort, but I do admire the courage for a change. You have my support, Mr. Low, but unfortunately, I am not a unit-holder.

The changes, might not be as scaring as painted. Fear is a useful tool to fence off the weaker. Many time in life, changes aren't as fearful as one's imagination.

My best wish.

[corydorus]

Agreed. To add though I am not vested, we need to view "integrity" as a holy principle. No 2nd Chance. Change must happen.

[level13]

Below paragraph extracted from the SGX announcement:

Mr Low criticised the purchase of the property at 47 Changi South Avenue 2 (“Changi South

Property”) at $23 million as being too high, as “…the same property sits in (the Sponsor)’s
book at only $9,935,000”. Mr Low queried the “objectivity and independence” of the
valuation by Colliers, Savills and Knight Frank which valued the Changi South Property at $23
million. We would point out to Unitholders that the Sponsor had purchased the property for
its own use, and therefore the book value of the Changi South Property in the Sponsor’s
books reflected the original cost of acquisition of the property by the Sponsor less
accumulated depreciation. As such, the book value is irrelevant and not a good basis for
comparison. 

I agree that comparison to the direct book value is not the best way because all owners would like their property to fetch a higher price. But to pay 2.3X more just because the purchaser is not buying for own use beggars belief. 

Imagine this: 
There is currently an apartment for sale at the SAIL in marina bay. The seller is asking for $2.2 mil.
What would a keen buyer do? He/she will look at the most recent transactions nearby or in the same building to ensure that one is not overpaying for it. What do you think if the agent ask "Are you staying or renting this out?".
"Renting out the price will be $4.4 mil". Will the buyer still be keen?

I know the changi south property is a industrial property and not residential. But you get the drift.

I am not vested in SABANA. But if the reit manager is treating all unitholders as fools........ this is what will happen eventually. 
Sincerely wish these 66 unitholders well and hope the outcome is what they wanted.