Sabana Shari'ah REIT

[steadyvalue]

the definition of the related party is and controlling shareholder is provided in the listing manual. Unless the ESR owned manager is removed, it is a related and interested party. period.

I have read the comprehensive 17 page letter from SGIC which looks to be drafted by the legal counsels. Kudos to these shareholders for fighting for minority interest.

One of the main argument is trustee certification for trust deed amendment from para 50. The trust deed explicitly states that trustee should provide certification if the amendment does not materially prejudice unitholders or release the manager and trustee from any responsibility.

I agree with them that internalization does not do that. it actually gives shareholders more rights and value. Shareholders have also voted for internalization which confirms this again. So Trustee should provide certifications in line with what shareholders want.

The letter raised the example of the trustee giving certification given to remove shariah compliance even though no shareholders voted for it and which also disenfranchised a number of muslim shareholders who had to sell their units.

I also remember the trustee giving certification for a number of amendments which were not even voted by unitholders

seems like clear double standards from the trustee??

The example of croesus conducting internalization without the need for any extraordinary resolution is also mentioned there.

So the big question is, is the trustee adding extra hurdles for its own shareholders? why are they doing this?

[ghchua]

Hi steadyvalue,

the definition of the related party is and controlling shareholder is provided in the listing manual. Unless the ESR owned manager is removed, it is a related and interested party. period.

I agree with you that ESR owned manager is an interested party. But you didn't address my previous point on why if ESR owned manager is an interested party and a controlling shareholder, they are allowed to vote for their own removal as a manager in the previous EGM and now not allowed to vote for changes in trust deed as they have already been voted out? That is the context on my question and you haven't address it.

One of the main argument is trustee certification for trust deed amendment from para 50. The trust deed explicitly states that trustee should provide certification if the amendment does not materially prejudice unitholders or release the manager and trustee from any responsibility.

I agree with them that internalization does not do that. it actually gives shareholders more rights and value. Shareholders have also voted for internalization which confirms this again. So Trustee should provide certifications in line with what shareholders want.

So what is your point here? Previously, you have said here that trust deed amendment is not needed for internalization. Now, you are saying that trust deed amendment is needed, but EGM is not needed. Is it what you are trying to say? I just want to confirm your stand here before we debate further.

The example of croesus conducting internalization without the need for any extraordinary resolution is also mentioned there.

I think I have already addressed this point earlier in my posts here. Croesus Retail Trust is a business trust where they already have the structure in place to implement internalization. Sabana Industrial REIT is not a business trust.

[weijian]

After picking (and winning) a battle with the REIT manager, it sounds like SGIC is now picking a battle with the Trustee. The bulk of the 30plus questions suggest that those who posed these questions, do not really trust the Trustee. That is a bad start to the later sequence of all that has happened.

RESPONSES TO SUBSTANTIAL AND RELEVANT QUESTIONS FROM UNITHOLDERS

Question:
Why the Trustee keep talking about ‘discretion’ when shareholder are the ones paying their fees and they are to execute what shareholders want? Its as if Unitholders want to do A and the Trustee says that unitholders are wrong and want to do B. Usually these service providers should be fired if they do not listen to their client who is paying?

Answer:
The resolutions passed at the 7 August 2023 EGM are worded in general terms, and without the specific steps which supporting Unitholders had expected to be undertaken to implement the internalisation. In fact, Quarz had acknowledged in its earlier statement dated 4 July 2023 that “it is for the Sabana Trustee to consider the best approach and necessary steps to take to carry out the internalization process”.

The Trustee acknowledges that certain Unitholders currently disagree with the Trustee’s execution of the internalisation. If the Trustee arrives at a view that it is not able to properly implement the Requisitioned Resolutions pertaining to the 8 March 2024 EGM if passed, it may need to consider further options in the interest of moving forward, including inviting Unitholders to appoint a replacement trustee, as mentioned in the Trustee’s Statement dated 29 February 2024.

https://links.sgx.com/FileOpen/Sabana%20...eID=790925

[ghchua]

Hi weijian,

I think the main issue here is, as I have previously highlighted in the posts here on this topic, whether an EGM is needed for trust deed amendment for internalization. Trustee and SGIC disagree on that (like me and steadyvalue here) and therefore trustee had referred the matter to Court. However, this had resulted in delays and more cost for unitholders and the whole thing is now up to a boiling point. Of course, there are also other areas of disagreements, which is why those resolutions had been put out at the EGM.

Basically, I think up to this point, both sides cannot co-exist anymore. There is no trust (no pun intended here) on the trustee by SGIC on their internalization work. Either one of them have to go, and this coming EGM result will indicate who will exit this saga.

[CY09]

ESR and HSBC has a long working relationship. One of ESR's main banker is HSBC. With ESR now being kicked out, it could be that HSBC will make life difficult because their partner (in crime) is now gone. This is my speculation but HSBC is making it difficult

[weijian]

@ghchua,
I think HSBC is prudent by referring it to the court. If they had done otherwise, it is possible that ESR would sue them in the Court for their "wrong" interpretation of the trust deed.

@CY09,
HSBC is a global bank that was founded in 1865. As such, long working relationships with many people/businesses are common and not out of the ordinary. Do take note that HSBC was appointed as the Trustee before ESR bought over the manager from Vibrant Group. Also, from HSBC's 62billion USD of revenue in 2023, how much would come from ESR?

[ghchua]

@ghchua,
I think HSBC is prudent by referring it to the court. If they had done otherwise, it is possible that ESR would sue them in the Court for their "wrong" interpretation of the trust deed.

HSBC trustee interpretation of the trust deed is to hold the EGM for trust amendments for internalization. I think that is very clear from the onset, even before the EGM is held for internalization. I don't think ESR would disagree with them.

The problem is that SGIC disagrees with them and therefore they had to refer the matter to the Court to settle.

[specuvestor]

Personally I find it ironic that another EGM need to be held when the Trustee supposedly should advise on the procedure in the first EGM as I expressed below, like an "in the event" clause to continue the vote since an EGM is needed

Then to add to the irony they are suggesting that unitholders, after paying trustee fee all these years, can find a replacement trustee, who is willing to come in and clear the crap.

So the duty or the discretion of the trustee of a REIT is to hold EGMs for unitholders to tell them what to do? I can see why the trust is failing

After picking (and winning) a battle with the REIT manager, it sounds like SGIC is now picking a battle with the Trustee. The bulk of the 30plus questions suggest that those who posed these questions, do not really trust the Trustee. That is a bad start to the later sequence of all that has happened.

RESPONSES TO SUBSTANTIAL AND RELEVANT QUESTIONS FROM UNITHOLDERS

Question:
Why the Trustee keep talking about ‘discretion’ when shareholder are the ones paying their fees and they are to execute what shareholders want? Its as if Unitholders want to do A and the Trustee says that unitholders are wrong and want to do B. Usually these service providers should be fired if they do not listen to their client who is paying?

Answer:
The resolutions passed at the 7 August 2023 EGM are worded in general terms, and without the specific steps which supporting Unitholders had expected to be undertaken to implement the internalisation. In fact, Quarz had acknowledged in its earlier statement dated 4 July 2023 that “it is for the Sabana Trustee to consider the best approach and necessary steps to take to carry out the internalization process”.

The Trustee acknowledges that certain Unitholders currently disagree with the Trustee’s execution of the internalisation. If the Trustee arrives at a view that it is not able to properly implement the Requisitioned Resolutions pertaining to the 8 March 2024 EGM if passed, it may need to consider further options in the interest of moving forward, including inviting Unitholders to appoint a replacement trustee, as mentioned in the Trustee’s Statement dated 29 February 2024.

https://links.sgx.com/FileOpen/Sabana%20...eID=790925

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

[weijian]

@ghchua,
I think HSBC is prudent by referring it to the court. If they had done otherwise, it is possible that ESR would sue them in the Court for their "wrong" interpretation of the trust deed.

HSBC trustee interpretation of the trust deed is to hold the EGM for trust amendments for internalization. I think that is very clear from the onset, even before the EGM is held for internalization. I don't think ESR would disagree with them.

The problem is that SGIC disagrees with them and therefore they had to refer the matter to the Court to settle.

hi ghchua,

What I mean is that if HSBC as Trustee, did not proceed to hold the EGM to change the trust deed, then good chance ESR would sue them as per trust deed.

@specuvestor, IIRC this EGM is called by SGIC, since they disagree with what HSBC is doing in order to internalize the REIT manager.

[header]

This is a mess...
Directionally, internalisation makes sense. But Quarz makes few errors in how they executing it, IMHO.
These include:
1) making enemies everywhere (ESR, REIT Board & manager and all their staff, Trustee and I suspect MAS civil servants also dont like them)
2) accusing/ implying ESR having no integrity. This makes ESR have to fight them to save their own reputation
3) I think Quarz didnt have a side talk with ESR to buy or sell their stake in REIT. Now is impossible due to (2)
4) Placing too high hopes on Trustee to execute the internalisation. Turstee at best is just a guardian, and will rely heavy on external advisor to execute and changes to protect themselves.
5) didnt clarify with MAS on requirements of internalisation before hand

Passing all the resolutions proposed in coming EGM will not solve the issue and likely will only lengthen the pain, unless MAS step in. Best is either ESR or Quarz exit.