Sabana Shari'ah REIT

[steadyvalue]

very very very important to vote!! last few days!!!

Manager has hinted a few times it wants to do placements! Even when DPU going down and occupancy problems.

Wah liao.... have to protect my investments

Definitely agree

Quite clear the manager doing placements and rights and acquisitions and collect more and more fees from shareholders.

They didnt dare to answer when shareholders tell them why not get the share price back to NAV first before doing placements

With this kind of manager, vote a BIG NO to resolution 4! must vote!!

[weijian]

The media campaign of these guys quite good 

Quarz Explains How to VOTE AGAINST Rights Issue and Placements at Sabana REIT AGM
https://www.youtube.com/watch?v=rTlCmpmMALk

Quarz Calls on Sabana REIT Unitholders to VOTE AGAINST Resolution 4 at 25 April 2023 AGM
https://youtu.be/c_3k_gf88ds

ya lar, have to email or send letter to vote against rights and placements la.

all the reit manager think shareholders are money tree, keep doing placements and rights, buy assets, then more fees for them.

Never think how they should improve DPU and price. like ESR Logos and Manulife la.. keep injecting assets from sponsor and share price free fall.

will vote against!

It seems like Quarz has scored a victory...In addition, they also took the scalp of a proposed ID (who will still serve on the BOD as a non independent)

RESULTS OF ANNUAL GENERAL MEETING HELD ON 25 APRIL 2023

https://links.sgx.com/FileOpen/Results%2...eID=756043

Company's answer to Mrs Elaine Lim's proposed ID appointment:

Mr Donald Han and Mrs Elaine Lim were not colleagues at HSR. Mr Donald Han was a nonexecutive special adviser to the CEO and COO of HSR (and not a board director) whilst Mrs Elaine Lim was a non-executive independent director. During the short overlap of their respective tenure at HSR, their interaction was limited. They have had no interaction since 2013. It was SIAS that recommended Mrs Elaine Lim to the current Sabana board and she complies with all the criteria of independence, as identified in the Singapore Code of Corporate Governance 2018, the Securities and Futures (Licensing and Conduct of Business) Regulations and the Listing Manual of the Singapore Exchange Securities Trading Limited. The process that Sabana's Nominating and Remuneration Committee and Board took to review and approve her appointment is detailed in the company's announcement (please refer to https://sabana.listedcompany.com/news.html/id/2395021), posted on SGXNet on 6 July 2022.

[steadyvalue]

Good move and rightly said! 

Investors getting fed up with all the rights and placements. 
REIT prices seem to only go down nowadays with manager happily doing rights and placements to increase fees.

What kind of market is this??? 

https://www.businesstimes.com.sg/compani...nalisation

ACTIVIST investor Quarz Capital has requisitioned an extraordinary general meeting (EGM) to remove the manager of (Sabana Reit) in favour of an internal manager.

In a letter dated Jun 7 seen by The Business Times (BT), Quarz requested for the board of Sabana Reit to convene an EGM to pass two resolutions.

The first is to remove Sabana Real Estate Investment Management as manager of Sabana Reit as soon as practicable.

The second resolution seeks to effect the internalisation of the Reit management function by incorporating a subsidiary wholly owned by the trustee and appointing such a subsidiary to act as the manager of Sabana Reit.

Quarz also wants the trustee to “hire and appoint qualified candidates as directors and staff of the internal manager” and “consider the retention of Sabana Reit’s existing staff in order to maintain the continuity of Sabana Reit’s operations”.

In its letter, Quarz said that internalisation of the manager would bring benefits to unitholders by providing cost savings once the external manager is removed.

“The replacement of the ESR Group-owned external manager by an internal manager will resolve the potential corporate governance flaws and can potentially result in higher distribution per unit (DPU) and unit price to Sabana unitholders in the future,” Quarz noted.

It estimates that there would be cost savings of around S$7.3 million of fees and net profit “which unitholders currently pay to the external manager and its shareholder, ESR Group”.

Quarz added: “The removal of the external manager will also likely eliminate all other fees such as performance, acquisition, divestment, lease and property management fees which need to be paid by unitholders to the external manager.”

Quarz indicated that the new internal manager will be fully owned by unitholders, and there would be better alignment of interest.

Quarz pointed out that the external manager model presents a “potential misalignment of interests” between the external manager and unitholders.

It highlighted that an external manager can increase the profitability of its sponsor by: increasing acquisition fees from doing more acquisitions; increasing management fees by acquiring and enlarging the portfolio; or acquiring the sponsor’s properties at a profit for the sponsor’s benefit.

“While an internal manager works to increase the DPU and unit price (for) unitholders, an external manager tends to serve the interests of its owner, namely the sponsor, by increasing its profitability where possible,” Quarz said.

It noted that the majority of Reits in the US and Australia are managed by internal managers. “As the Reit market in the US and Australia have been in existence since the 1970s, the general investors’ sentiments backed by numerous academic studies is that the external manager model tends to underperform the internal manager model, especially in terms of DPU and unit price,” it added.

BT has reached out to the manager of Sabana Reit for comment. The manager said on Jun 8 that it is considering the requisition notice and seeking legal advice.

[steadyvalue]

Interesting piece on the request for EGM!

https://www.businesstimes.com.sg/opinion...nitholders

[weijian]

Interesting piece on the request for EGM!

https://www.businesstimes.com.sg/opinion...nitholders

The internalization of any REIT manager isn't good news for asset managers.

Interesting to see how this battle plays out as the results will have implications for other listed asset managers with managed entities that are similarly listed (eg. Capitaland Investment)

[steadyvalue]

Proposal to internalise Sabana Reit’s manager transfers value from ESR Group to unitholders
https://www.businesstimes.com.sg/opinion...nitholders

QUARZ Capital has just declared war on ESR Group – that was the reaction of an old hand in Singapore’s real estate investment trust (Reit) sector to news this past week that the activist investor has requisitioned an extraordinary general meeting (EGM) to internalise the manager of Sabana Industrial Reit.

If the resolutions Quarz wants to put forward at the EGM are passed, the current manager of Sabana Reit – a company called Sabana Real Estate Investment Management, which is ultimately owned by Hong Kong-listed ESR Group – will stop receiving fee income from the Reit.

In its place, the Reit’s trustee will set up a separate company and appoint it to act as the Reit’s new manager.

In effect, Quarz is proposing a significant transfer of value away from ESR Group to unitholders of Sabana Reit.

Quarz, in a letter dated Jun 7 to the board of Sabana Reit’s manager, said it expected cost savings from its internalisation proposal to deliver a roughly 7.2 per cent increase in distributions per unit (DPU).

The internalisation push appears to be partly motivated by Quarz’s dissatisfaction with Sabana Reit’s operational performance. Quarz’s letter noted that occupancy rates across the Reit’s portfolio properties over the last few years have been lower than those of its peers and the national average.

The activist investor also grumbled that occupancy rates at some buildings with higher rental rates – such as New Tech Park, Frontech Centre, 8 Commonwealth Lane, and 10 Changi South Street 2 – had fallen despite favourable conditions in the industrial property sector.

In the letter, it offered a laundry list of improvements the new internal manager could pursue to boost Sabana Reit’s performance. This included improving the occupancy rates and adding space at some properties, and undertaking debt-funded acquisitions.

Quarz said it sees potential for the new internal manager to boost Sabana Reit’s DPU over the medium term by almost 60 per cent.

For 2022, Sabana Reit reported flat DPU of 3.05 Singapore cents.

Its net asset value (NAV) as at Dec 31 was S$0.53 per unit.
Sabana Reit closed Friday (Jun 9) at S$0.43. Based on its 2022 financial numbers, the Reit is trading at a yield of nearly 7.1 per cent, and an 18.9 per cent discount to NAV.

Volare, Quarz increased stakes

The manager of Sabana Reit will probably dispute some of Quarz’s assertions about the Reit’s operational performance.

For instance, Quarz said in its letter that Sabana Reit’s portfolio occupancy was 88.2 per cent at end-2022. But the manager of Sabana Reit has reported a portfolio occupancy rate at end-2022 of 91.2 per cent – excluding its property at 1 Tuas Avenue 4, which is currently vacant and going through an asset enhancement initiative.

The market value of Sabana Reit’s units has also held up quite well over the past year, despite rising interest rates and concerns about slowing economic growth. Over the past 12 months,

Sabana Reit’s units have delivered a total return of 2.4 per cent.

By comparison, Mapletree Logistics Trust returned 3.1 per cent, while Mapletree Industrial Trust returned minus 6.7 per cent. CapitaLand Ascendas Reit returned 0.3 per cent.

Quarz said in its Jun 7 letter, however, that Sabana Reit might have performed more poorly over the last couple of years if its substantial unitholders had not been increasing their stakes.

On Jan 20, Volare Group unveiled a partial offer for 10 per cent of Sabana Reit’s units at S$0.465 apiece. By the close of the offer on Mar 24, valid acceptances had been received for 27.7 per cent of Sabana Reit’s units.

Volare held more than 169.1 million Sabana Reit units following the partial offer, putting its stake in the Reit at more than 15.4 per cent.

On Mar 20, Quarz’s own stake in Sabana Reit breached the 15 per cent level. This came after the purchase of 96,000 units in the market, raising its deemed interest to 164.5 million units.

Still, Sabana Reit’s manager may face an uphill battle arguing against Quarz’s internalisation proposal. In the wake of the pandemic and subsequent steep rise in interest rates, there is more scrutiny of the value that external managers bring to the table.

Moreover, it seems to be widely accepted that internally managed Reits are less susceptible than externally managed ones to issues related to conflicts of interest.

Sabana Reit and ESR-Logos Reit both invest in Singapore industrial properties, and their managers are ultimately owned by ESR Group. Given that ESR-Logos Reit has a market capitalisation more than five times that of Sabana Reit, their sponsor may appear to be incentivised to prioritise the interests of the former over the latter.

Internalising the manager of Sabana Reit would turn ESR Group into just another big unitholder alongside Volare and Quarz, thus mitigating this problem of overlapping mandates.

ESR Group’s fees, distributions

In 2020, Quarz waged a bruising campaign to prevent Sabana Reit from being merged with ESR-Reit on terms that were plainly unfair. Since then, Quarz has repeatedly criticised Sabana Reit’s performance and questioned the appointment of various directors to the board of the Reit’s manager.

Quarz also mobilised unitholders of Sabana Reit to vote against Resolution 4 at its annual general meeting on Apr 25. The resolution, which would have authorised the manager to issue new units, failed to pass, with 42.14 per cent of units voting for it and 57.86 per cent of units voting against it.

Without the mandate to issue new units, the manager of Sabana Reit will have to obtain permission from unitholders whenever it needs to raise equity funding. This has arguably reduced the usefulness of Sabana Reit as a property securitisation platform, and made it less likely for ESR Group to obtain a high valuation for its manager in any potential sale.

Under the circumstances, the relevance of the Sabana Reit platform to ESR Group is probably now financial rather than strategic. While ESR Group would certainly be ill-disposed to surrendering the fee income it collects from Sabana Reit every year, it would stand to benefit somewhat from the Reit’s increased profitability in the event that Quarz’s proposal is implemented.

ESR Group held more than 226.8 million units in Sabana Reit as at Mar 8, representing a nearly 20.7 per cent stake. ESR Group would therefore have received more than S$6.9 million in distributions from Sabana Reit for 2022.

This was almost equivalent to the nearly S$7.3 million in fees Sabana Reit paid to its sponsor group in 2022 – which comprised S$4.4 million in manager’s fees and S$2.8 million in property and lease management fees.

While it remains to be seen how ESR Group reacts to Quarz’s proposal to internalise the manager of Sabana Reit, it already seems clear this episode will mark an interesting milestone in the development of Singapore’s Reit sector.

[weijian]

There are merits to both sides of the argument. The savings with an internal manager are real (although how much is hypothetical). Just look at the other side of the trade - The likes of Straits Trading, Boustead Spore or Keppel Corp trying to become asset managers.

OTOH, been small without a sponsor also means that one is probably consigned to been small forever - The chances of scaling up to enjoy economies of scale (like manpower, negotiation, cross selling etc) will be much reduced as asset holders (many of them are sponsors) will prefer to sell to their own REITs to continue to retain the mgt fees. They either have to pay more and scale much more slower.

So what is Quarz's end game? Probably to get a higher selling price I suppose.

An activist investor in Singapore pitches East against West

Handing over activities like property acquisition, disposal and redevelopment to a new subsidiary owned by the trustee will mean reductions in fees that currently flow to the sponsor, Quarz says, projecting a 7-plus increase in dividends to unitholders. The Reit manager disagrees. The cost savings, in its view, are hypothetical, while a change in guard could trigger a mandatory prepayment of loans to creditors. Besides, the new team will need a capital-market-services licence from the monetary authority. All this translates to “considerable operational challenges and potential disruptions to the day-to-day management” during the takeover, “which could severely affect the value” of the Reit, it says.

https://www.businesstimes.com.sg/propert...ainst-west

[steadyvalue]

from quartz:

Court dismisses injunction to block Sabana Reit EGM

Dear Sabana unitholders,

We appreciate that the Singapore court has dismissed, in its entirety, ESR’s application to restrain the convening of an EGM.

The Court has recognized that unitholders’ right to remove the REIT manager is a key pillar of unitholder protection in Singapore. This outcome is a win for all unitholders of SGX-listed REITs, and corporate governance. It also sets a strong precedent for the whole REIT sector.

Sabana Trustee has confirmed that they are formulating a steps plan to implement the Resolutions. This tells us that the Trustee is fully capable of setting up a new internal manager which will be fully owned by and aligned with all unitholders.

To clarify, if Resolutions 1 and 2 are passed, the External Manager will serve until the new Internal Manager is fully set up by the Trustee and ready to take over the management of the REIT. 

The Trust Deed does not provide for the External Manager to resign unless approved by the Trustee or MAS. As such, we believe that there is very little chance of the change of control clause in the loan agreements being triggered after Resolutions 1 and 2 are passed.

Unitholders can also direct the Trustee to consider retaining the existing staff of the current External Manager. This will ensure stability and continuity for unitholders.

We believe that the cost of setting up the Internal Manager can be covered by the projected cost savings from removing the External Manager. By removing the External Manager, unitholders can potentially save more than S$40 million of fees they need to pay to the External Manager over the next 10 years.

We thank all unitholders for their  strong  support and call on all unitholders to exercise their rights and vote for the removal of the External Manager and vote for directing the Trustee to set up the internal manager which will substantially improve corporate governance and potentially drive significantly better DPU and unit price performance.

[steadyvalue]

https://www.businesstimes.com.sg/opinion...ation-plan

Sabana Reit’s manager should state if it will work with the trustee on internalisation plan

THE trustee of Sabana Industrial Real Estate Investment Trust (Sabana Reit) indicated last week that it “will expect” the current manager of the Reit to serve as interim manager in the event unitholders vote for a controversial internalisation proposal.

This could assuage concerns among some unitholders that the internalisation plan will leave Sabana Reit without a manager for a lengthy period of time, and potentially in breach of its loan covenants.
More to the point, Sabana Reit’s manager may now be in the awkward position of having to publicly state whether it plans to live up to the expectations of the trustee.

On Jun 7, activist investor Quarz Capital requisitioned an extraordinary general meeting (EGM) to vote on two resolutions.

The first is for Sabana Real Estate Investment Management (SREIM) to be removed as the manager of Sabana Reit.

The second is for HSBC Institutional Trust Services (Singapore) (HSBC Trustee) to be directed to create a new internal manager and bring in suitably qualified candidates as directors and staff.

Unsurprisingly, SREIM is against the whole exercise. On Jun 22, it said the internalisation proposal is rife with uncertainties and might destroy value for unitholders. Among other things, it warned that a change in Sabana Reit’s manager could trigger a mandatory prepayment of its loans.

On Jul 5, SREIM said it had written to Sabana Reit’s lenders to seek a waiver of this possible “review event” but the banks had refused. “The lenders will require more information before they can make a decision,” SREIM said.

ESR Group – which owns SREIM through an independent trustee – is also against the internalisation proposal. On Jun 25, it said the board and staff of Sabana Reit’s manager would have no incentive to remain in their positions if unitholders voted for the internalisation plan.

ESR also questioned the ability of HSBC Trustee to cope with having to actively manage Sabana Reit, and raised doubts about whether a newly incorporated internal manager would be able to immediately fulfil the necessary licensing requirements.

ESR subsequently applied to the courts for a declaration that Quarz’s EGM requisition is invalid, and a permanent injunction restraining Sabana Reit’s manager from convening an EGM. The hearing is scheduled for Jul 19.

A draft statement from HSBC Trustee made available last week ahead of the imminent court hearing casts a new light on the internalisation proposal, though. In particular, the trustee plainly stated it would look to ensure the stability of Sabana Reit’s operations with the help of the existing manager.

“The trustee will expect SREIM to continue to serve as interim manager until a replacement external or internal manager is appointed, including to engage with lenders and regulatory authorities, as required,” HSBC Trustee said.

“The trustee will have to rely on the existing property manager for continuity of the operational and day-to-day aspects of Sabana Reit,” it added.

HSBC Trustee went on to say: “If there is any actual or potential disruption to the management of Sabana Reit, the trustee will, together with its professional advisers, oversee the management of Sabana Reit in the interests of unitholders and work with SREIM (if possible) to seek to minimise such disruption risks.”

[header]

This is an interesting test case of hostile reit manager internalisation. ESR and Quarz each has 21% and 15% stake in the REIT. Volare (15% stake) should be working with Quarz. If so,likely the resolution can be passed as it should be based on simple majority present and voting.

Having said this, Quarz have not disclose too much on their plans. Hope they (and Volare) have a detailed execution plan.