'I'm not the kingmaker,' says Sabana Reit director whom Quarz wants voted out

Singapore

SABANA Industrial Real Estate Investment Trust (Sabana Reit) is staring down the barrel of yet another crucial vote that could have a major impact on its plans going forward.

This comes 16 months after its proposed merger with ESR-Reit was voted down by unitholders in December 2020.

Instrumental in that defeat - the first time in the history of Singapore's real estate investment trust (Reit) market that a proposed merger had been voted down - was activist fund manager Quarz Capital Management.

Quarz is now rallying unitholders to reject 3 of the 5 resolutions that Sabana Reit has tabled for its annual general meeting (AGM) on Apr 26.

At the centre of the storm is hedge fund founder and former Credit Suisse trader Chan Wai Kheong, who was appointed as an independent non-executive director of the Reit in June last year.

Quarz has objected to this appointment and had called on more than one occasion for an extraordinary general meeting (EGM) to be convened to vote on the appointment.

Sabana Reit's manager had rejected the requests, saying the reasons put forth for the EGM lack grounds. Chan's appointment will be subject to the endorsement of the Reit's independent unitholders at the upcoming AGM.

Among other things, Quarz takes issue with Chan's significant unitholding in Aims Apac Reit (AA Reit), which it calls "a significant Sabana competitor". Both primarily invest in industrial assets in Singapore.

"As a director of Sabana Reit, Chan will be privy to confidential information regarding Sabana Reit, which would conflict with his personal economic interest and the interest of Aims Apac Reit at the expense of Sabana Reit unitholders," Quarz said in a statement.

"It's like appointing the biggest shareholder of Samsung as a director in Apple, so he will know all the Apple secrets," Havard Chi, Quarz's head of research, told The Business Times.

But Sabana Reit's manager has responded that Chan is neither on the board nor involved in the management of AA Reit.

"I'm not the kingmaker," Chan said in an interview with BT. "I'm only a 5 per cent shareholder, what can I do? There are other people - the owner himself owns quite a big chunk, and there are other institutional shareholders."

Chan is listed among the top 5 largest unitholders of AA Reit, according to Bloomberg data.

Quarz is also asking other minority unitholders to vote against 2 other resolutions. These are the general mandate to authorise the Reit manager to issue new units as well as the approval of the distribution reinvestment plan (DRP).

Quarz argues that Sabana Reit has one of the lowest leverage ratios among the Singapore-listed real estate investment trusts (S-Reits) and has substantial debt capacity to fund any acquisition without having to raise money through the issuance of new units.

It added that the issuance of new units under the DRP also dilutes that value of existing units.

But chief executive officer of Sabana Reit manager Donald Han said the inability to issue new units would "cripple" the Reit's ability to grow and get to its target of S$1 billion in assets under management.

"(We) will have limited levers for us to manoeuvre; we won't be able to take part in terms of issuance of shares, which is a pity," Han said.

He added: "Ultimately, I think anyone who's against the idea (of DRP) has got other ulterior motives."

Looking back at the failed merger with ESR-Reit, the manager of Sabana Reit said there are "a lot of valuable lessons to be learned".

"The merger was meant to leapfrog us from being a very small Reit into the big league," Han said. "Obviously, in hindsight, we could have done better."

Because the proposed merger with ESR-Reit was scuttled, Han said the journey for Sabana Reit to grow "has taken a while".

Some reasons for the merger failing, the Sabana Reit manager said, were the timing of the proposal, which had come about around the start of the coronavirus pandemic, as well as the pricing of the merger offer.

Another key reason, added Sabana Reit chairman Tan Cheong Hin, was that communication with minority unitholders and other key stakeholders may have fallen short.

"In hindsight, if we had reached out to them, maybe things could have been brought up to sharper focus earlier and differences could have been reconciled," Tan said.

To this end, Sabana Reit and the Securities Investors Association (Singapore), or Sias, is holding a virtual dialogue session with unitholders on Apr 14.

But with just 2 weeks left to the AGM, it remains to be seen whether Sabana Reit can get Quarz - its second-largest unitholder with a nearly 12 per cent stake - on board with its plans.

With the relationship between Sabana Reit and Quarz awash with antagonistic undertones, it could be an uphill battle indeed.