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Sabana Reit, ESR Reit sponsor says 'strict internal controls' in place for conflicts of interest

FOLLOWING an activist fund’s call for the merger of Sabana Reit and ESR Reit, sponsor ESR Cayman on Friday said it is aware of the possible conflicts of interest that may arise between the two Reits, and has put in place "strict internal controls" to regulate conflicts of interest within its different business lines.

It added that it had gone through a thorough process of setting up structures in order to prevent the sharing of information between the managers of both Reits.

"For example, ESR has no representative on the board of Sabana REIT manager," it said.

As for any potential merger of the two Reits, ESR said it had no comment.

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Activist fund Quarz Capital Management had argued in an open letter on Thursday that ESR Cayman’s cross ownership of the managers of both Reits puts Sabana Reit at a disadvantage when the investment mandates overlap.

It said that Sabana Reit trades at a sharp discount to its book value of S$0.56 per unit because it is in direct competition with ESR Reit for assets in the Singapore industrial real estate sector, which is "limited in size and transactions".

In order to resolve this, ESR Cayman should merge the Reits by way of a trust scheme, Quarz added in the letter to the board and management of ESR Cayman and Sabana Reit.

As at 11.47am on Friday, Sabana Reit units were trading at S$0.47, up one Singapore cent or 2.2 per cent. Meanwhile, ESR-Reit units were trading flat at S$0.53.