ESR, Quarz restate positions in response to Sias’ queries on Sabana

ESR Group and activist investor Quarz, which have been trading blows over an attempt to internalise Sabana Industrial Reit’s manager, defended their positions ahead of an Aug 7 extraordinary general meeting (EGM) that will decide the fate of the real estate investment trust (Reit).

ESR said it has always supported Sabana’s growth, while Quarz pledged to engage with all stakeholders to support the internalisation of the manager.

ESR, which is opposing the internalisation, rejected claims that it has conflicting interests. The Securities Investors Association (Singapore) or Sias had asked how it would respond to unitholders who believe ESR has an interest in maintaining the status quo, as a stronger and larger Sabana Reit could become a credible competitor to ESR-Logos Reit.

ESR is a sponsor of ESR-Logos and owns 99 per cent of its manager.

In responses published on Thursday (Aug 3), ESR said it does not prioritise one Reit over the other. It said it has been supportive of Sabana’s growth plans, and pointed out that it had voted to approve the general mandate for unit issuance.

ESR, which is a 20.6 per cent unitholder of Sabana, reiterated its concerns over financing costs rising should Sabana’s manager be internalised.

It said being linked to a larger sponsor group enables a Reit to benefit from more preferential credit terms and greater access to capital for growth.

“Quarz does not have the track record or the financial strength to provide similar support to Sabana Reit, and as such, runs the risk of eroding Sabana Reit’s ability to raise capital on favourable terms,” ESR said.

Separately, Quarz said it has been actively engaging with various key stakeholders who will be involved in an internalisation, including the Monetary Authority of Singapore (MAS), Singapore Exchange Regulation, bankers and corporate governance experts.

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Quarz, which has a 14 per cent stake in Sabana, said banks have consistently extended support in loans and interest rate hedges in all cases where there is a change in ownership of a Reit’s management.

“This is because the bank loans are backed by the Reit’s portfolio and MAS also takes prudent measures to ensure that the leverage levels of Reits are below 50 per cent to facilitate such changes if necessary,” Quarz said.

It added that a new internal manager will have stronger credibility as it will be backed by all unitholders, including significant institutional investors and individual unitholders.

Quarz requisitioned the EGM in June for unitholders to vote on two ordinary resolutions: to remove Sabana Real Estate Investment Management as the manager, and direct the trustee to internalise the Reit’s management function.

Proxy advisers Glass Lewis and Institutional Shareholder Services (ISS) have recommended that unitholders vote against the second resolution, in view of uncertainties and adverse consequences that could potentially arise. But they differed in their views on the first resolution.

Units of Sabana ended trading flat at S$0.405 on Friday.