Sabana Reit external manager’s rebuttal ‘empty threats’: Quarz Capital
ACTIVIST shareholder Quarz Capital said the external manager of Sabana Industrial Real Estate Investment Trust (Reit) was using “empty threats” to rebuff an attempt to replace it with internal management, and urged a speedy vote on the matter.
Quarz, which has requisitioned an extraordinary general meeting (EGM) to vote on internalising management of the Reit, told The Business Times on Friday (Jun 23) that an internal manager model for Sabana Reit would help to transfer “significant value” from ESR Group to the Reit’s unitholders. Holding the EGM “as soon as possible” will kick-start the execution of key strategies that will increase distribution payouts to unitholders, unit price upside and cost savings, the firm said.
The activist investor also noted that Sabana Reit’s leverage, at 33 per cent, is the sixth-lowest among S-Reits. Quarz claimed that Sabana Reit would need fewer than six years to pay off its entire loan from its net property income, while it would take Suntec Reit and Keppel Reit more than 11 years.
“The loans are backed by strong, recurring and resilient rental income from Sabana’s highly attractive ‘All Singapore’ property portfolio,” added Quarz.
Quarz had earlier this month requested for the board of Sabana Reit to convene an EGM to pass two resolutions – to remove Sabana Reit’s current manager, and to effect an internalisation of the Reit management function by incorporating a subsidiary that is wholly owned by the trustee and appointing this subsidiary to act as the Reit’s manager.
The current manager is controlled by ESR Group, which is also the sponsor of the Reit.
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Quarz’s requisition was met with criticism from Sabana Real Estate Investment Management, which on Thursday filed a 35-page document and a 26-slide presentation deck to the bourse to rebut the activist investor’s proposal.
Sabana Real Estate Investment Management had, in its response, warned unitholders that following through on the proposal might destroy the value of their investment.
Internalising the Reit manager was likely to cause great uncertainty to the Reit, and potentially destroy value for unitholders, a slide in the presentation deck said.
Sabana Real Estate Investment Management had also listed what it said were misleading or unsubstantiated claims by Quarz, including inaccuracies, financial projections and assumptions in the requisition notice. The Reit manager said that Quarz’s requisition and its reasoning were “overly simplistic and lacked clarity” on how the proposals were to be implemented; it also did not offer a timeline for the move.
Quarz said the internal-manager model is the “standard model” used in most developed Reit markets such as the US and Australia.
“It is not surprising that the board and management of the external manager is resorting to empty threats and fearmongering, to protect its own interest and to continue collecting their high salaries and fees from unitholders,” said Quarz.
Responding to the manager’s assertion that a change in the manager of the Reit could trigger change-of-control provisions on the trust’s debts, Quarz said that if the change-of-control provision does materialise, ESR Group – with a 21 per cent stake in Sabana Reit – would be “the biggest loser”.
In response to queries from BT regarding Quarz’s latest statement, a spokesperson from Sabana Real Estate Investment Management referred to the trust’s announcement on Thursday, reiterating that the company’s removal as Sabana Reit’s manager would trigger the removal of manager clause. This is a review event under the Reit’s various loans.
If triggered, this could result in mandatory prepayment by Sabana Reit of its outstanding loans and interest if no satisfactory agreement is reached with the lenders following the review event. All three of Sabana Reit’s existing facility agreements have review events, the spokesperson said.
As at end-March 2023, Sabana Reit has drawn down a total of S$303 million from the three facilities. The maximum amount that the Reit can draw down from these facilities is S$415 million, according to previous bourse filings.
Quarz, however, had said in its response that unitholders are “highly confident” that Sabana Reit’s main financiers – UOB, HSBC and Maybank – would support the removal of the external manager due to “serious corporate governance concerns, conflicts of interest and underperformance”.
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