Sabana Reit manager questions internalisation proposal

Singapore

THE proposed merger of ESR-Reit and Shari'ah Compliant Industrial Real Estate Investment Trust (Sabana Reit) is "the only offer that is currently on the table", the Reit manager's board said on Friday night, responding to fund managers Quarz Capital and Black Crane Capital's call to unitholders to reject the deal and internalise the Reit's management.

The Reit manager also asked the fund managers to "substantiate their claims or provide more details so that the management team and unitholders can carry out a serious analysis of their claims and proposals".

Quarz and Black Crane advise entities that collectively hold more than 11 per cent of Sabana Reit, and oppose the proposed merger at the terms of 0.94 ESR-Reit unit for one Sabana Reit unit.

Following Sabana Reit's statement on Friday, Quarz and Black Crane told The Business Times that they intend to provide their comprehensive views and answers to the Reit manager's questions within a week.

On Wednesday, the fund managers released a statement indicating their intention to requisition an extraordinary general meeting (EGM) to internalise the Reit management, saying this should be done after the proposed merger falls through.

They said that the primary goal of an internal manager would be to close the net asset value discount of Sabana units, by improving the Reit's performance and/or via the sale of all or part of the portfolio, returning surplus capital to unitholders.

An EGM on the proposed merger with ESR-Reit is due to be held on Dec 4, with unitholder voting having already begun.

On Friday, Sabana Reit's manager said it had reviewed the fund managers' statement "but was unable to determine the workability and benefits of the internalisation proposal". It pointed out that such a move would require consent from banks, so that Sabana Reit does not risk defaulting on its existing obligations.

The Reit manager added that "the two fund managers are proposing a very different and highly uncertain path for Sabana Reit as a standalone Reit without a sponsor vis-a-vis merger to create a larger Reit with a strong sponsor".

It questioned estimates made by the fund managers, such as a S$2 million cost savings from internalisation, given that the manager would have to be acquired.

Clarifying this, Quarz and Black Crane said that they do not intend to purchase the Reit manager from ESR-Reit. Rather, the internal manager "will be owned by all unitholders and for all unitholders".

Sabana Reit's manager also questioned the estimate that Sabana Reit's potential 2021 standalone DPU would be more than 20 per cent above the 2020 level, and projections for the annual net rental and distribution income for the retail component of 151 Lorong Chuan, at S$3.7 million and S$3.1 million respectively. "The Board finds that some of these claims are unrealistic," it added.

It said that "the fact of the matter is that the Sabana Manager has not received any alternative offers for Sabana Reit and/or its assets". If the merger is not approved at the EGM, the ESR-Reit manager and its concert parties will be restricted from making another offer for Sabana Reit, whether voluntary or mandatory, in the next 12 months.

The Reit manager advised unitholders and investors to exercise caution when dealing in its units.

Sabana Reit units closed unchanged at S$0.35 on Friday before the release.