Sabana Shari'ah REIT

[donmihaihai]

[I do disagree with some of the points below because external managers of S-REITs are NOT fully entrenched, as they can be voted off with simple majority, and replaced with ANOTHER external manager. So there is accountability, there is recourse.

Exactly. Now that the external manager related to ESR had been voted out, where is the conflict of interest they are talking about to prevent ESR and related parties from voting on changes in trust deed to implement internalization?

Unless they are saying that the external manager model for REITs represents corporate governance issues across the board. Then, it will be better to mandate that all REITs listed to SGX should change to the internal manager model.

I thought the resolutions passed at the last EGM only give a YES let do it. After gotten the YES, the Trustee need to do it with another EGM and before Trustee kick start the process, Quarz is saying the Trustee interpretation is wrong and seeking clarification.

Sabana_Notice of EGM.ashx (sgx.com)

[Shiyi]

[I do disagree with some of the points below because external managers of S-REITs are NOT fully entrenched, as they can be voted off with simple majority, and replaced with ANOTHER external manager. So there is accountability, there is recourse.

Exactly. Now that the external manager related to ESR had been voted out, where is the conflict of interest they are talking about to prevent ESR and related parties from voting on changes in trust deed to implement internalization?

Unless they are saying that the external manager model for REITs represents corporate governance issues across the board. Then, it will be better to mandate that all REITs listed to SGX should change to the internal manager model.

I thought the resolutions passed at the last EGM only give a YES let do it. After gotten the YES, the Trustee need to do it with another EGM and before Trustee kick start the process, Quarz is saying the Trustee interpretation is wrong and seeking clarification.

Sabana_Notice of EGM.ashx (sgx.com)

[ghchua]

I thought the resolutions passed at the last EGM only give a YES let do it. After gotten the YES, the Trustee need to do it with another EGM and before Trustee kick start the process, Quarz is saying the Trustee interpretation is wrong and seeking clarification.

Sabana_Notice of EGM.ashx (sgx.com)

Hi donmihaihai,

That is where the confusion begins.

Initially, some unitholders (including forumer steadyvalue which I have debated with him earlier in this topic) thought that the last EGM was all it needed to implement internalization. No further EGMs was needed.

And if internalization indeed need changes to the trust deed, normally a neater way is to do will be to present all resolutions to the unitholders at an EGM, with all resolutions being inter-conditional.

Now, that the previous EGM had been passed, if indeed what Quarz (or some unitholders) believed that it does not need trust deed changes, then why now this issue on trust deed? And if indeed trust deed changes are needed, then it should be inter-conditional to the removal of manager resolution at the previous EGM. Otherwise, you cannot say that both are related, since as I explained before, the wordings in those changes are generic, with no reference to the sponsor/manager name.

So, my view on the above is very clear. The resolution presented at the last EGM was as it is, with both resolutions not inter-conditional.

1. Remove manager. Carried. So, manager removed.
2. Carry out process of internalization. Carried. So, process kick start for internalization. If needed further EGM for trust deed changes, there is no conflict of interest anymore since manager had already been removed.

[specuvestor]

Just to chime in as a spectator: The Trustee kept its distance and may not have advised Quarz (or Quarz didn't seek their advice) on the proper procedure or what they require to proceed drafted in the first EGM in the event of the manager being ousted. In short they are waiting for instructions passively and carrying out the bolded italics below.

So now they probably need this EGM to cover themselves to proceed. Ordinary resolution 1 looks like a red herring to cover up the more important admin of resolution 2

resolution 2 d,e,f refers to UNITHOLDERS able to appoint remove and re-appoint directors of the internal managers (not the REIT) just helping to be clear on the terminology.

https://sabana.listedcompany.com/newsroo...CFV1.1.pdf

Quote: "If the resolutions are passed and cannot be implemented at all, or within a reasonable timeframe, the trustee will, with its professional advisers, explore all options including the option of winding up the REIT. At least one of the additional EGMs requires unitholders to vote on an extraordinary resolution, for change of trust deed, which needs to be passed with a super majority."

https://sg.finance.yahoo.com/news/sabana...16749.html

Don't see any need to change trust deed. In croesus case, the manager was also internalised with a simple majority vote. 

I believe the only outstanding part is resolution 2 part 4-6 which says amendment of trust deed to allow shareholders to appoint, remove and re-appoint directors.

But even that should be able to incorporate without changing trust deed as can be seen from croesus as well. Both are trusts.

Hi steadyvalue,

I beg to differ with you. Croesus Retail Trust is a business trust, not a REIT. You might ask, both are trusts so what is the difference?

A business trust is a hybrid structure consisting a company and a trust. Meaning, it is like a stapled structure. Since it already has a company in place in the structure, there is no need for amendment of trust deed for internalization. One can just fall back on the company side of the structure.

A REIT, however, is only a trust by itself, holding the underlying assets. The assets are managed separately by a manager. The wordings are really based on external manager structure, since they are supposed to be separate. Therefore, this needs to be changed for the purpose of internalization.

It's a bit more complicated than that. Like I mentioned above, the property owner doesn't own the property. It's actually the Trust. And I haven't bothered to read the loan covenants but there can be a change of control or manager clause to protect the bank.

But yes the Trustee should be more proactive and should at least have an opinion whether the manager is good and in the extreme case exercise discretionary right to replace the manager if it is not.

The trustee is as usual just passively waiting for instructions and keep mum, forgetting it's paid recurring for its fiduciary duty to the many beneficiaries.

When it comes to the crunch Structure becomes most important.

My further gripe about Trustee in a REIT is as below:
https://www.valuebuddies.com/thread-255-...#pid168746

[donmihaihai]

I thought the resolutions passed at the last EGM only give a YES let do it. After gotten the YES, the Trustee need to do it with another EGM and before Trustee kick start the process, Quarz is saying the Trustee interpretation is wrong and seeking clarification.

Sabana_Notice of EGM.ashx (sgx.com)

Hi donmihaihai,

That is where the confusion begins.

Initially, some unitholders (including forumer steadyvalue which I have debated with him earlier in this topic) thought that the last EGM was all it needed to implement internalization. No further EGMs was needed.

And if internalization indeed need changes to the trust deed, normally a neater way is to do will be to present all resolutions to the unitholders at an EGM, with all resolutions being inter-conditional.

Now, that the previous EGM had been passed, if indeed what Quarz (or some unitholders) believed that it does not need trust deed changes, then why now this issue on trust deed? And if indeed trust deed changes are needed, then it should be inter-conditional to the removal of manager resolution at the previous EGM. Otherwise, you cannot say that both are related, since as I explained before, the wordings in those changes are generic, with no reference to the sponsor/manager name.

So, my view on the above is very clear. The resolution presented at the last EGM was as it is, with both resolutions not inter-conditional.

1. Remove manager. Carried. So, manager removed.
2. Carry out process of internalization. Carried. So, process kick start for internalization. If needed further EGM for trust deed changes, there is no conflict of interest anymore since manager had already been removed.

too difficult but clearly manager is still around. 

The manger removes by who? Trustee? Is it practicable to remove manager without a replacement (external or internal manager)? I would think about my potential liabilities before I act if I am the trustee. So, manager remain until it is practicable to remove.

[steadyvalue]

until the ESR owned manager is fully removed, they are still receiving fees and if they are receiving fees, they are interested and related parties. the regulation is transparent in this.

Allowing them to vote on the resolution is the same as allowing them to vote on whether their fees should be changed (to 0 if the amendment is done) or the other way. Totally make sense that they should not be allowed.

If there are allowed to vote, this would open a huge pandora box where manager can insert higher fee income into resolutions discretely and also vote for them. For example amend the trust deed such that the manager can hire related party advisors to advise it or amend the trust deed such that the management team is paid by the reit. This does not change the fees but allows the manager to be able to charge more fees to the reit. Make sense why the related parties and manager should abstain

[steadyvalue]

High time that Singapore regulation catch up with the rest of the world where internal manager is the norm. If regulators does not act, it is only time that the reit market would get the same way as S-Chips.

If its so difficult to internalize, what is then incentive for managers and sponsor to take care of unitholders? They know that whatever they do to push for higher fees and profit (make bad acquisitions like manulife us reit, do placement and rights at huge discounts, buy assets from sponsor at high price) unitholders can't do anything.

and if that is the case, why should investors invest in reits? better to invest in other markets with better protection.
The reit market is at a pivotal point. Either the regulators step in and show the way or watch the slow meltdown of the whole market.

[CY09]

Hi Steadyvalue,

You need to know who are the main beneficaries of the external REIT manager model in Singapore. Firstly, it allows these well known local companies to monetise their properties by disposing off their invested properties at the right time of a property cycle and of course in line with the reported year end valuation. Such companies have been measured and not completing ripping off its child REIT. It is the externality of a few foreign companies such as Manulife and KBS that have been capitialising on Singapore's model to try their luck offloading resulting in MUST and PRIME sinking to close to disaster levels

Secondly, these well known local companies are moving to an asset light model to ensure their market cap value and enhance Singapore's standing as a financial hub. Their improvement in market value helps their substantial shareholder to improve its balance sheet value by accounting its stakes accordingly.

[steadyvalue]

you are right although i would be quite 'concern' about the 'not completely ripping off its child reit' part especially if the sponsor now know that internalisation des not work.

What is to stop them from completely ripping off its child reit? placements and rights can be done at ever cheaper price. If you were an ESR REIT unitholder from 2019, you would have seem placements from 51.5 cents to the latest one at 33 cents.

It doesn't matter if the share price of the reit goes down, the sponsor has the potential to sell the asset to its reit at a high price to capture high disposal profits which falls outweigh the drop in share price.

Should reit investors be dependent on the 'benevolence' of the sponsor or good regulatory protection? the regulators have to choose and investors will act depending on the above

[ghchua]

until the ESR owned manager is fully removed, they are still receiving fees and if they are receiving fees, they are interested and related parties. the regulation is transparent in this.

Hi steadyvalue,

It seems strange that you are bringing out this issue of interested and related parties now. Nothing is more related than the removal of the manager at the last EGM, which nobody is required to abstain from voting. Since ESR owned manager is not required to abstain from voting on their own removal, why should they be abstained from voting to changes in trust deed to implement internalization?

The trustee can remove ESR owned manager anytime. It is just an interim measure since the removal of manager resolution had been carried. It has nothing to do with the changes in trust deed to implement internalization itself, since these are two separate matters. The decision to retain ESR owned manager is not on ESR, but on the trustee itself.