Sabana Reit EGM: Is dismissing the manager the panacea?
Singapore
SINGAPORE'S Reit sector is celebrated around the world for providing investors with stable returns and dividend income. In recent months, however, the sector has had to grapple with a challenging leasing environment and weak macroeconomic conditions. Sabana Reit, like all others, has been hit by these market factors.
Unitholders in every business have every right to be concerned about their investments and how they are managed. In the case of Sabana Reit, unitholder concerns were raised at a dialogue session with SIAS last week.
These concerns revolved mainly around the failure of the Reit manager to preserve unit value - in fact, there has been a 50 per cent loss since listing.
Unitholders at the dialogue would have been encouraged to know that their voice is being heard; however, at the session, they were also told that approving the resolutions tabled before them ahead of the extraordinary general meeting on Friday, April 28, may adversely impact their investments.
The board has a fiduciary duty to put forth its recommendations based on the analysis of the situation. Unitholders need to understand the implications to the Reit and the impact of their decisions so as not to undermine the value of their units. This value must be preserved. The following is what the unitholders took home after the two-hour session.
Uncertainties
The first resolution, which is changing the manager, they heard will not be easy and is fraught with uncertainties. There are a number of financial arrangements in place and breaches will likely be triggered should the manager be removed. Should a suitable replacement manager be found, they will also need MAS approval and this is not assured.
The second resolution, to internalise the manager's function, has long been debated in the Reit industry but has yet to be implemented in Singapore. While it may sound simple, given the fact that none of the Reits have implemented it suggests that it might be more difficult than it appears. The trustee would have to do a lot of work and get agreement through various resolutions that unitholders will need to approve. Ultimately, time and costs will be incurred searching for appropriate directors and employees. It is a task for the trustee, who may not be likely to find one quickly.
The third and fourth resolutions relate to winding up the Reit.
Winding up any listed company is fraught with complexities. In this case, given the structure, Sabana Reit will need to be delisted before it is wound up. This will not guarantee a specific payout to unitholders and will occur over a prolonged period exceeding two years. Furthermore, the forced sale of any assets, especially in a difficult market, tends to come at a substantial discount as buyers are aware of seller's need to sell.
The directors have acknowledged that it hasn't been plain sailing but they are undertaking a strategic review with a view to changing course and delivering further value for unitholders.
Decisions
The Strategic Review Committee will consider all options available to Sabana Reit and, in particular, look for potential strategic partners who can enhance the performance in terms of the pipeline of assets, borrowing facilities and the capability of the management team.
I am certain the board will also entertain proposals from unitholders to the Strategic Review Committee that meet the brief. Progress has been made with a number of non-binding proposals and unitholders must have been encouraged to learn from the chairman that such proposals have been received and the board is not averse to even mergers with the right party.
I am of the view that unitholders would be wise to wait for the recommendations of the strategic review to understand the future direction of the business and then make an informed decision. Unitholders should be aware that voting out the manager at this stage would put an end to the strategic review.
Sabana's board is aware of the emotions and demands of unitholders and is taking steps to put things right. In addition, unitholders can also seek board representation to ensure and reassure themselves that the manager acts in the interest of all stakeholders.
Unitholders now have a decision to make - they can either vote for or against the resolutions but they have to understand the pros and cons. In such a situation, it is important to put aside the emotions and evaluate the resolutions based on the merits, and understand the risks of the decisions while looking forward, not backwards. Could there be other ways to resolve the issues? If there is a will, there is a way.
