THERE are strong legal and regulatory frameworks in Singapore to safeguard unitholders of a real estate investment trust (Reit) during the process of setting up a new internal manager, said activist investor Quarz Capital.

It also said that there will be no vacancy in the management of Sabana Industrial Reit : M1GU 0%, if unitholders vote to replace its current external manager with an internal one.

The Reit’s trustee “has confirmed that it will only remove the external manager once the internal manager is fully set up, licensed and ready to take over”, Quarz added.

Quarz, which also holds units of Sabana Reit, made these arguments in an open letter to the Reit’s unitholders, management and board on Thursday (Jul 27). It sought to refute claims made by the current manager Sabana Real Estate Investment Management (SREIM), as well as its owner ESR Group, that there are hurdles to internalisation given that no blueprint currently exists for such a structure.

In the letter, Quarz said that legal and regulatory action might be taken against SREIM and its directors if it fails to fulfil its obligations.

“The Monetary Authority of Singapore has specifically put in place a comprehensive regulatory framework to ensure stability, continuity, and protection to safeguard unitholders in the removal of manager and internalisation process,” it noted.

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Quarz and ESR Group, along with SREIM, have been embroiled in a fiery exchange over the past two months, after the activist investor requisitioned an extraordinary general meeting (EGM) to vote on two resolutions.

The first resolution is to remove SREIM as the Reit’s current manager. The second resolution, if passed, will put into action the internalisation of Sabana Reit’s management by incorporating a subsidiary wholly owned by the Reit’s trustee and appointing such a subsidiary to act as the Reit’s manager.

The EGM, which was originally slated to be held on Aug 4, will now be held on Aug 7.

ESR Group has made the case to unitholders that the passing of the second resolution would not automatically lead to internalisation. On the contrary, it said that the resolution’s passage would cast Sabana Reit into a prolonged period of uncertainty, which could result in a loss of confidence in the Reit. 

This is because the lack of an internalised management structure for Reits means considerable time and costs will be needed to identify and establish one before getting it approved by unitholders.

ESR Group also previously said that there is “no assurance or certainty” that existing staff of SREIM would be willing to stay on if both resolutions are passed.

In its latest salvo, Quarz said that claims made by SREIM and ESR Group are “scare tactics” and “empty threats”.

Besides its argument that procedures for internalisation are already in place, Quarz also said it will likely take less than two years of cost savings to fully pay for the projected cost of setting up the new internal manager. This is estimated to be between S$3 million and S$5 million.

“However, the true cost savings for unitholders is the complete alignment of interest of the internal manager,” Quarz said. “This ensures that no unitholders’ monies will be wasted in potentially value-destructive acquisitions done to boost acquisition, performance and management fees to the external manager.”

Units of Sabana Reit fell 1.2 per cent or S$0.005 to close at S$0.41 on Thursday, before the open letter was posted on the bourse.