Sabana Shari'ah REIT

[ACTIVIST SPEAKS]

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.

THIS IS OUR BIGGEST PROBLEM.  This debunk all of the Manager's rebuttal using the desktop valuation report of Knight Frank and Savills to justify the higher price paid for all their recent purchases.

[Retired@52]

Although major portion of my investment is in REITs, I didn’t invest in Sabana REIT for personal reason.

Nevertheless, I would like to thank all of you who take the “Manager” to task. Whatever the outcome, this will give warnings to other REITs’ Managers.

They cannot just Buy & Sell to make commissions for themselves at the expense of the Unit Holders using the mandates in the prospectus to justify their actions.

[weijian]

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.

 

hi level13,
I do not think your example is apt.

Vibrant Grp AR16: http://infopub.sgx.com/FileOpen/Vibrant%...leID=29684

Based on Vibrant Group (the "Sponsor")'s AR16 under significant accounting policies:
- Under item 3.6 Investment Properties, "Investment properties are properties held either to earn rental income or for capital appreciation or for both, but not for sale in the ordinary course of business, use in the production or supply of goods or services or for administrative purposes".
- item 3.4 states that "Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses". I believe Changi South is parked under this on the balance sheet since the are not part of investment properties which is not used in the production/supply of goods etc.

Changi South ("The property") is recorded based on cost minus depreciation as stated and sits on the BS with a NAV of 9.935mil. When it is time to sell, they would be re-classified into Investment Properties and a re-valuation is performed, which the valuer determines it to be 23mil.

So for your example, when the seller asks for "2.2mil", he/she has already re-valuated it and it is been classified as "Investment Properties" on his/her own balance sheet. "2.2mil" is not the cost of the seller's purchase of his/her The SAIL apartment.

[tonylim]

http://infopub.sgx.com/FileOpen/20170207...eID=438262

A) Reply by Manager of SABANA is self explanatory !

1. All purchases by the manager were supported by licensed valuers ! Is there any not supported by them ?

2. " (b) 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. "

SOME COMPANIES NOT ONLY  DON'T CARRY OUT REVALUATIONS OF THEIR PROPERTIES , BUT ALSO DEPRECIATE THEM ANNUALLY.

3)" In his note, Mr Low has proposed to remove the Manager and suggested to Unitholders to set up “our own in-house team to manage the REIT”.  It does not appear that an in-house team has been assembled as Mr Low has stated that “(w)e want to look for qualified people to head our in-house team "

IS THE MANAGER WRONG ON POINTING THIS OUT ?

4) '' The Manager wishes to highlight that the removal of the Manager without the consent of the lenders is an event of default under the terms of the outstanding loan facilities of Sabana REIT and will result in a cross default of Sabana REIT's other obligations under the MTN programme and convertible sukuk. "

IF MR. LOW THINK THE MANAGER IS NOT TELLING THE TRUTH , MR. LOW CAN GET HIS LAWYER TO CHALLENGE THEM .

5) " Mr Low has claimed that the Manager is being paid too much. We would like to point out that the fee structure charged by the Manager is consistent with the fee structure adopted by many other S-REITS.  We would also like to mention that the Manager had elected to receive 80% of its fees in Units since IPO and currently holds 3.92% of the total Units.  The Manager’s interests is aligned with all Unitholders. "

MR. LOW CAN REPORT TO POLICE IF THE MANAGER HAS BREACHED THE FEE STRUCTURE !

All investments carry RISKS , sometimes we win and sometimes we lose , if one only wants to win , then better stay away from any investment !

[ACTIVIST SPEAKS]

tonylim, I will answer you point by point:

1 and 2. 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. I did not compare historical cost with the current price and say one is cheap and other is expensive. And I know the various way a property can be recorded in the books when I was studying 1st year accountancy in NUS. I am not the only one challenging this. 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. All purchases and disposal must be supported by a valuation report. I never say that there is none.

3. 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 think 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. MAS has just confirmed today that the Trustee has the power to appoint the next Manager (see, you can wrong). We think the Manager is wrong to insist that we have a replacement manager. In any case, how can we (66 strangers) assemble a team of more than 100 people as standby to take over in case the Manager is successfully removed.

4. The Manager is correct to point out 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. I have never accused them of lying and in fact, I agree with them on the default convenants. And I do not know how you can come to your conclusion that I accuse them of lying.

5. We think they are overpaid. And for that, you want us to report to the police??? You can disagree with what we are doing but you cannot put words into our mouth. Even Sabana did not but for some reason, you constantly attack us in a very degrading way.

P.S. I delete those postings and most of them are reproduced here anyway. Sorry, did not know about this ethics

[TTTI]

tonylim, I will answer you point by point:

1 and 2.    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.  I did not compare historical cost with the current price and say one is cheap and other is expensive. And I know the various way a property can be recorded in the books when I was studying 1st year accountancy in NUS.  I am not the only one challenging this.  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.  All purchases and disposal must be supported by a valuation report.  I never say that there is none.  

3.   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 think 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.   MAS has just confirmed today that the Trustee has the power to appoint the next Manager (see, you can wrong).  We think the Manager is wrong to insist that we have a replacement manager.  In any case, how can we (66 strangers) assemble a team of more than 100 people as standby to take over in case the Manager is successfully removed.

4.   The Manager is correct to point out 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.  I have never accused them of lying and in fact, I agree with them on the default convenants.  And I do not know how you can come to your conclusion that I accuse them of lying.

5.   We think they are overpaid.  And for that, you want us to report to the police???  You can disagree with what we are doing but you cannot put words into our mouth.  Even Sabana did not but for some reason, you constantly attack us in a very degrading way.

P.S.  I delete those postings and most of them are reproduced here anyway.  Sorry, did not know about this ethics

My 2 cents worth.
I think all this back and forth arguments are completely missing the point. They are all irrelevant. Why do I say that? Let's establish the facts.

The manager works (in theory) for the benefit of the unitholders. Agree?
The unitholders wants 1) high DPU 2) Rising share price. Agree?
So the key question is:
Has the manager achieved this? The facts say "hell, no!".
Nobody can disagree with the above statements. They are facts, right?

Going into detail to break down the logic of each step is missing the forest for the tree. 

To give an analogy, if you work in sales, and you fail to satisfy the goals set by your boss, can you tell your boss:
1) No sales because previously we got 3 big clients. They failed to renew contract and now I gotta find many smaller clients, which I am unable to do so. Not my fault.
2) I am not overpaid. Because all my peers in this line gets paid the salary as me. I even convert 80% of my salary to the company's shares under employee share option scheme. My interests are vested with the company!

Does it matter? The boss wants the sales. You failed while your peers in other companies (other REITs) have done much better.

The only problem here is that the unitholders are unable to give an alternative solution. In all the successful activists campaigns I've studied, there's always a team. Relying on some miracle to assemble the team is not going to cut it with the other unitholders.
I too, think the loan covenants thing is just scare tactics.
A strong team can easily renegotiate. Nothing has changed fundamentally with the removal of the team.
In fact, one can argue that with the removal of the underperforming team, the lenders should be even happier to relax the loan covenants since now they are less likely to default!

So in summary to Activist, you really need a team. An alternative solution. I don't even think they need to have strong credentials. 
It doesn't take much to outperform expectations at this juncture right?
And if anything, in terms of career prospects, this should be a golden opportunity for those who are qualified and have the knowhow and experience. Think about it: there's no downside.
If you fail, well the previous team already screwed it up beyond salvaging. Everyone knows that. It's plastered in the news.
If it flatlines, well, you are a steady hand and you kept it afloat against all odds.
If it succeeds, you are hailed as a Steve Jobs like genius, coming in, clearing the deadwood.

[ACTIVIST SPEAKS]

Agree with you.

Unfortunately, you do need a strong team with a CEO with at least 10 years experience before MAS will give him a CMS Licence to operate a REIT Manager. I know no one with a minimum 10 years experience will be willing to support 66 unitholders (with 0.6%) as a replacement team to takeover his friend, Kevin X in a very very remote possibility that we can remove the Sabana Manager. In 2005, Mapletree is the 6th REIT to be listed, which means there are very few people in Singapore who can run a REIT Manager. I know it and Kevin X knows it and that is why he is stressing that we do not have a replacement team. Again I believe when MAS allows 50 minority unitholders to convene a meeting to remove the manager, MAS had not intended for us to look for an alternative manager. MAS has just confirmed that the Trustee has the power to appoint the next Manager to Prof Koh and this is the way we always believe and this is how we are going to proceed after we can remove the manager. Simply, to try and assemble a REIT Manager (which involved at least 100 people) before removing the Sabana Manager is, for lack of a better word, stupid.

[brattzz]

I was thinking, without the current disputed manager, Sabana Shariah REIT will be game-over/liquidated?

I don't think so, it's a matter of hiring a better manager to take-over right?

wonder who will step up? or can HSBC put in a JM Judicial Management team for the time being until a better manager is found?

Like singpost looking for new chairman..etc...

[ACTIVIST SPEAKS]

Just think of how Aljunied GRC was handed over from PAP to Workers Party, it is just like that. No chaos. A bit buay song but orderly handover. Before Workers party's FMSS took over, it was still managed by PAP's agent. Now we want to internalize like Bishan-Toa Payoh GRC.

Do not succumb to the scare tactics used by Sabana Manager. There will not be chaos. The structure of the REIT is codified. The existence of the manager and trustees are codified. MAS overlooks the entire transition process. Have faith in the process. Have faith in the system, the same system that allows 50 unitholders to convene a meeting to remove the manager if they are not performing to our liking.

[level13]

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.

 

hi level13,
I do not think your example is apt.

Vibrant Grp AR16: http://infopub.sgx.com/FileOpen/Vibrant%...leID=29684

Based on Vibrant Group (the "Sponsor")'s AR16 under significant accounting policies:
- Under item 3.6 Investment Properties, "Investment properties are properties held either to earn rental income or for capital appreciation or for both, but not for sale in the ordinary course of business, use in the production or supply of goods or services or for administrative purposes".
- item 3.4 states that "Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses". I believe Changi South is parked under this on the balance sheet since the are not part of investment properties which is not used in the production/supply of goods etc.

Changi South ("The property") is recorded based on cost minus depreciation as stated and sits on the BS with a NAV of 9.935mil. When it is time to sell, they would be re-classified into Investment Properties and a re-valuation is performed, which the valuer determines it to be 23mil.

So for your example, when the seller asks for "2.2mil", he/she has already re-valuated it and it is been classified as "Investment Properties" on his/her own balance sheet. "2.2mil" is not the cost of the seller's purchase of his/her The SAIL apartment.

@weijian,
Thanks for pointing that out. On 2nd thought, my example doesn't seem quite right. Apologies for the confusion.