Quarz’s push to internalise Sabana Reit’s manager ‘wilfully ignores’ hurdles: ESR Group
THE push by Quarz Capital to internalise the management of Sabana Industrial Reit through the passing of resolutions at an extraordinary general meeting (EGM) “wilfully ignores” the “hurdles that stand in the way of internalisation”, said ESR Group in a letter to the Reit’s unitholders.
The letter, which was delivered on Tuesday (Jul 25) and seen by The Business Times, stated that there is “no existing blueprint for an internalised management structure” for Singapore real estate investment trusts (Reits).
Quarz, an activist investor of Sabana Reit, had requisitioned an EGM for unitholders to vote on two resolutions on Jun 7.
The first resolution is to remove Sabana Real Estate Investment Management (SREIM) as the Reit’s current manager. SREIM is owned by ESR Group. 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.
Quarz argued that the internalisation of the manager would bring benefits to unitholders by providing cost savings once the external manager is removed.
Since Quarz’s requisition, there has been a fiery exchange between the activist investor and ESR Group, which also owns a 20.6 per cent interest in Sabana Reit. It also owns the Reit’s manager, which would stop receiving fee income if the Reit’s management were to be internalised.
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The EGM, which was originally slated to be held on Aug 4, will now be held on Aug 7.
ESR Group has warned unitholders that voting for internalisation would be casting Sabana Reit into a prolonged period of uncertainty, which could result in a loss of confidence in the Reit by investors and lenders.
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.
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As the EGM for unitholders to vote on a controversial internalisation plan draws near, ESR Group’s latest letter reiterated similar points on the dangers of passing the two resolutions. It specifically noted that the passing of the second resolution would not automatically lead to internalisation.
“It should now be clear to unitholders that the passing of the second resolution only means that the trustee is directed to take steps, including engaging advisers, on the process for internalisation. This is only logical where there is no clear proposal from Quarz on the way forward,” read the letter.
“All parties agree that the process of internalisation would be unprecedented in the history of Singapore Reits. The trustee (HSBC Institutional Trust Services) has said that this process will take 12 months, or ‘potentially significantly longer’. Nobody knows how long that would be.”
ESR Group added that the future of Sabana Reit has been “thrown up in the air”, urging unitholders to “restore certainty and stability” by voting against both resolutions.
Units of Sabana Reit rose 1.2 per cent or S$0.005 to close at S$0.44 on Tuesday.
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