Sias questions ESR Group, Quarz Capital on internalisation of Sabana Reit’s manager
Megan Cheah
THE Securities Investors Association (Singapore) or Sias is seeking further clarification on unitholders’ behalf from ESR Group and Quarz Capital about the internalisation of the management function of Sabana Industrial Real Estate Investment Trust (Reit).
The matter would be put to a unitholder vote on Aug 7, in an extraordinary general meeting (EGM) requisitioned by activist investor Quarz Capital.
In an e-mail on Wednesday (Aug 2), Sias asked ESR Group, the Reit’s sponsor, how it would respond to unitholders who believe ESR Group has an interest in maintaining the “status quo” and ensuring Sabana Reit does not become a competitor to ESR-Logos, another Reit sponsored by the group.
It also asked ESR Group why it does not support the internalisation of the Reit manager, Sabana Real Estate Investment Management (SREIM), as the sponsor does not appear to actively contribute to Sabana Reit’s growth.
“This move would eliminate any operational and governance constraints,” said Sias.
It noted that establishing an internal manager to drive the Reit’s growth would also benefit all shareholders, “especially minority shareholders who find themselves caught between the clash of substantial unitholders”.
In addition, Sias requested the group to outline how it might have directly or indirectly helped Sabana Reit lower its costs.
The association questioned whether ESR Group had contacted Sabana Reit’s borrowers to confirm if borrowing costs would be increased and existing interest rate hedges unwound, should the manager be removed.
ESR Group was also asked to confirm that it would not “take any active steps to undermine Sabana Reit if unitholders voted for the internalisation”.
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Separately, Sias queried Quarz, which is pushing for the internalisation of SREIM, on whether it would be willing to provide financial support to Sabana Reit if the manager is internalised.
Quarz has “repeatedly pledged its support to help the trustee effect the implementation of internalisation”, noted Sias.
It asked if Quarz had been engaged by the trustee of Sabana Reit since it requisitioned the EGM, to be held on Aug 7, or whether it has, in turn, engaged with the Monetary Authority of Singapore and Singapore Exchange Regulation.
Quarz should also explain why unitholders should not be concerned about Sabana Reit having an estimated S$300 million in unsecured loans, despite Ernst & Young highlighting it as a material uncertainty, said Sias.
Sias also asked if Quarz had considered the risks and potential impact of SREIM failing to fulfil their obligations, in the event unitholders voted to remove them.
The association questioned Quarz’s confidence that an internal manager would be value-accretive for unitholders, particularly as Singapore law requires a Reit to have a board of directors and chief executive officer.
Internalisation of a Reit manager is “neither tested nor proven in Singapore”, the association noted.
Sias therefore requested Quarz to outline areas where it can help to “add value and expedite the internalisation process”.
Both parties were asked to respond by Aug 3.
Also on Wednesday, HSBC Institutional Trust Services, the trustee of Sabana Reit, sent a letter to SREIM reiterating its stance. It also stated that unitholders should read its statement in full “when referring to any market commentary”.
Meanwhile, ESR Group on Wednesday sent another letter to the Reit’s unitholders, urging them to “vote for stability and allow the manager to focus on delivering returns”.
It highlighted that independent proxy advisor Glass Lewis had recommended unitholders vote against the resolutions to remove SREIM and internalise the management function of Sabana Reit.
ESR Group said it was “now clear” that removing SREIM would not result in the cost savings outlined by Quarz.
Should the resolutions pass, unitholders would still have to pay ongoing management fees to the interim manager until a replacement can be appointed, it added.
Units of Sabana Reit closed flat at S$0.41 on Wednesday.
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