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| 13-Nov-2020 09:21 |
Alpha Integrated RE
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SABANA REIT
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ESR and Sabana' s IFAs advise voting in favour of proposed merger
THE respective independent financial advisers (IFAs) appointed by the managers of ESR-Reit and Sabana Shari' ah Compliant Industrial Reit (Sabana Reit) have advised the Reits' directors to recommend that unitholders vote in favour of the merger.
Appointments of Rothschild & Co - ESR-Reit' s IFA, and Deloitte & Touche Corporate Finance - Sabana Reit' s IFA, were made in response to recent events surrounding the proposed merger of Sabana Reit and ESR-Reit at the current terms of 0.94 ESR-Reit unit for one Sabana Reit unit.
An ESR-Reit circular to unitholders dated Nov 12 noted that Rothschild is of the opinion that the merger is on " normal commercial terms and is not prejudicial to the interests of ESR-Reit and minority unitholders" .
This was done after taking into consideration factors including liquidity analysis as well as the historical market performance and trading activity of the units of both Reits, trailing price to net asset value (P/NAV) multiples of the Reits' units over the last 36 months relative to the P/NAV implied by the merger, and the valuation multiples of selected Singapore-listed industrial S-Reits which are broadly comparable with ESR-Reit and Sabana Reit relative to those implied by the merger.
As such, the IFA has advised that the ESR-Reit manager' s audit, risk management and compliance committee, and its recommending directors, recommend that unitholders vote in favour of the merger.
Similarly, as detailed in a Sabana Reit scheme document the same day, Deloitte said the " financial terms of the merger are fair and reasonable" , and advised that the Reit' s independent directors recommend that its unitholders vote in favour of the scheme resolution.
It had also taken into consideration the rationale for the merger and that given how the merger is expected to be distribution per unit accretive and net asset value dilutive for Sabana Reit' s unitholders, " aggregate leverage is expected to increase" for them, among other factors.
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| 12-Nov-2020 12:43 |
Alpha Integrated RE
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SABANA REIT
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Yes yes to all, especially no 5
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| 12-Nov-2020 11:23 |
Alpha Integrated RE
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SABANA REIT
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YES TO ALL RESOLUTIONS 🙋 🙋 🙋 🙋 🙋
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| 12-Nov-2020 09:13 |
Alpha Integrated RE
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SABANA REIT
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Sabana Reit mulls fund managers' requisition notice asking for EOGM
THE board of the manager of Sabana Shari' ah Compliant Industrial Real Estate Investment Trust on Wednesday said it is considering the requisition notice from Quarz Capital and Black Crane Capital and seeking legal advice, adding that it will make further announcements on SGXNet in due course.
This was in response to a letter that it had received on Tuesday, in which the two fund managers requested that the board of directors convene an extraordinary general meeting (EOGM) it had also proposed five resolutions for unitholders to vote on.
Quarz and Black Crane had made the requisition in relation to the proposed merger of ESR-Reit and Sabana Reit through the acquisition by the ESR Reit trustee of all the Sabana units by way of a trust scheme arrangement announced on July 16.
The two fund managers are against the proposed merger of Sabana Reit and ESR-Reit at the current terms of 0.94 ESR-Reit unit for one Sabana Reit.
The Reit said in its bourse filing: " Sabana unitholders and investors are advised to refrain from taking any action in respect of their Sabana units which may be prejudicial to their interests, and to exercise caution when dealing in the Sabana units."
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| 11-Nov-2020 20:46 |
Alpha Integrated RE
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SABANA REIT
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Sabana Reit mulls fund managers' requisition notice asking for EOGM WED, NOV 11, 2020 - 6:39 PM THE board of the manager of Sabana Shari' ah Compliant Industrial Real Estate Investment Trust on Wednesday said it is considering the requisition notice from Quarz Capital and Black Crane Capital and seeking legal advice, adding that it will make further announcements on SGXNet in due course. This was in response to a letter that it had received on Tuesday, in which the two fund managers requested that the board of directors convene an extraordinary general meeting (EOGM) it had also proposed five resolutions for unitholders to vote on. Quarz and Black Crane had made the requisition in relation to the proposed merger of ESR-Reit and Sabana Reit through the acquisition by the ESR Reit trustee of all the Sabana units by way of a trust scheme arrangement announced on July 16. The two fund managers are against the proposed merger of Sabana Reit and ESR-Reit at the current terms of 0.94 ESR-Reit unit for one Sabana Reit. The Reit said in its bourse filing: " Sabana unitholders and investors are advised to refrain from taking any action in respect of their Sabana units which may be prejudicial to their interests, and to exercise caution when dealing in the Sabana units." https://www.businesstimes.com.sg/companies-markets/sabana-reit-mulls-fund-managers-requisition-notice-asking-for-eogm |
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| 11-Nov-2020 17:21 |
Alpha Integrated RE
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SABANA REIT
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YES TO ALL 5 RESOLUTIONS | ||||
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| 11-Nov-2020 09:14 |
Alpha Integrated RE
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SABANA REIT
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Quarz, Black Crane ask Sabana Reit' s manager to convene EGM
FUND managers Quarz Capital and Black Crane Capital, in a letter sent on Tuesday and seen by The Business Times, have made a requisition to the board of Sabana Shari' ah Compliant Industrial Real Estate Investment Trust' s (Sabana Reit) manager to convene an extraordinary general meeting (EGM).
Quarz and Black Crane advise entities that collectively hold more than 11 per cent of Sabana Reit. The two fund managers are against the proposed merger of Sabana Reit and ESR-Reit at the current terms of 0.94 ESR-Reit unit for one Sabana Reit.
In the letter, Quarz and Black Crane have proposed five resolutions for investors to vote upon.
The first relates to Ng Shin Ein, who is currently an independent non-executive director of the manager.
Among other things, they are seeking clarification on declarations or disclosures made by Ms Ng during the course of the board' s assessment that Ms Ng should be deemed independent. They have asked unitholders to decide whether the board should be made to disclose other information, including Ms Ng' s business relationships with ESR Cayman and its affiliates.
The second resolution pertains to the hiring of three former ESR employees at Sabana Reit' s manager. Black Crane and Quarz have asked that the board be directed to disclose the circumstances of these hirings, and whether or not potential conflicts of interest were considered.
Third, the fund manager requested that the basis and reasons for recommending the proposed merger be made known - along with the relevant board meeting minutes.
The fourth resolution is for the board to make " further study and investigations of the merits of the proposed merger" in light of the issues raised by independent unitholders in their open letters to the manager and the Reit, and to disclose to unitholders the steps the board has taken as well as the results of the further studies. If appropriate, the board should suspend all actions relating to the proposed merger with a view to terminate it.
Finally, the board has been asked distribute 50 per cent of the previously withheld distribution amount for the first half of 2020 as well as the distributable income from July to September.
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| 10-Nov-2020 19:52 |
Alpha Integrated RE
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SABANA REIT
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https://www.businesstimes.com.sg/companies-markets/quarz-black-crane-ask-sabana-reits-manager-to-convene-egm Requisition letter posted in the webpage below: https://www.savesabanareit.com/open-letters Quarz, Black Crane ask Sabana Reit' s manager to convene EGMFUND managers Quarz Capital and Black Crane Capital, in a letter sent on Tuesday and seen by The Business Times, have made a requisition to the board of Sabana Shari' ah Compliant Industrial Real Estate Investment Trust' s (Sabana Reit) manager to convene an extraordinary general meeting (EGM). Quarz and Black Crane advise entities that collectively hold more than 11 per cent of Sabana Reit. The two fund managers are against the proposed merger of Sabana Reit and ESR-Reit at the current terms of 0.94 ESR-Reit unit for one Sabana Reit. In the letter, Quarz and Black Crane have proposed five resolutions for investors to vote upon. The first relates to Ng Shin Ein, who is currently an independent non-executive director of the manager. Among other things, they are seeking clarification on declarations or disclosures made by Ms Ng during the course of the board' s assessment that Ms Ng should be deemed independent. They have asked unitholders to decide whether the board should be made to disclose other information, including Ms Ng' s business relationships with ESR Cayman and its affiliates. The second resolution pertains to the hiring of three former ESR employees at Sabana Reit' s manager. Black Crane and Quarz have asked that the board be directed to disclose the circumstances of these hirings, and whether or not potential conflicts of interest were considered. Third, the fund manager requested that the basis and reasons for recommending the proposed merger be made known - along with the relevant board meeting minutes. The fourth resolution is for the board to make " further study and investigations of the merits of the proposed merger" in light of the issues raised by independent unitholders in their open letters to the manager and the Reit, and to disclose to unitholders the steps the board has taken as well as the results of the further studies. If appropriate, the board should suspend all actions relating to the proposed merger with a view to terminate it. Finally, the board has been asked distribute 50 per cent of the previously withheld distribution amount for the first half of 2020 as well as the distributable income from July to September. |
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| 06-Oct-2020 18:20 |
Alpha Integrated RE
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SABANA REIT
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Quarz and Black Crane refer to the announcement released today by the Sabana REIT manager, which clearly acknowledges the non-compliance with regulation 13G(2)(b) of the SFLCBR due to the deemed business relationship of one of the independent directors with ESR Cayman. Such blatant non-compliance was conveniently justified by referring to another regulation allowing the 2 other directors (who are themselves appointed by ESR Cayman) to evaluate the relevant director' s independence despite the deemed business relationship (with ESR Cayman). Various other remaining questions raised in Prof Mak' s article, such as the grounds on which the board assessed independence and the quantum of payments made to the relevant director remain unanswered. At the same time, the Sabana REIT manager relies on technical provisions of the law to justify such non-disclosures, which is not in line with the spirit and intent of the Corporate Governance Code. Quarz and Black Crane will be hosting a series of webinars and discussions for all Sabana REIT unitholders in the coming weeks. We intend to share our views and information on why the proposed merger is suboptimal and value destructive to all independent Sabana unitholders such as ourselves and should be voted down. This will include our analysis of ESR REIT, in particular its leverage ratio, land lease (and its impact on book value), and assets such as 750 Chai Chee Lane and UE Bizhub East. We also intend to answer questions from Sabana unitholders. Unlike the SIAS interview which presented a one-sided view from the 2 REIT Managers (without any input from independent unitholders), we extend our invitation to Mr. Donald Han, Mr Adrian Chui and independent directors to join our discussion and defend their proposal. We will also share our plans on how independent unitholders can work together to increase the value of our unitholdings post the EGM and ensure that the REIT is managed to the best interest of all unitholders. A vote down of the merger proposal will send a clear message to the current REIT Manager and independent directors that independent unitholders lack confidence in their leadership and corporate governance. |
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| 23-Sep-2020 11:46 |
Alpha Integrated RE
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SABANA REIT
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A neverending recurring theme in the SGX Circus Maximus!!!!!!  
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| 22-Sep-2020 23:39 |
Alpha Integrated RE
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SABANA REIT
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KNN suay, con job all the way, big fish eat small fish and still get away | ||||
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| 22-Sep-2020 15:53 |
Alpha Integrated RE
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SABANA REIT
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Good article. 
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| 22-Sep-2020 15:20 |
Alpha Integrated RE
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SABANA REIT
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SABANA REIT: INDEPENDENT OVERNIGHT?Posted by Mak Yuen Teen | Sep 22, 2020 https://governanceforstakeholders.com/2020/09/22/sabana-reit-independent-overnight/
By Mak Yuen Teen On September 21, 2020, Sabana Real Estate Investment Management Pte Ltd, the manager of Sabana REIT, issued an addendum to its 2019 annual report. The crux of the addendum was to justify the re-designation of Ms Ng Shin Ein from a non-independent non-executive director to an independent non-executive director. In FY2018 and FY2019, Ms Ng received payments from InfinitySub (a related corporation of the manager) for the divestment of all her shares in Blackwood Investment Pte Ltd to InfinitySub. This gave rise to a deemed business interest with InfinitySub under Regulation 13G(2)(b) of the Securities and Futures (Licensing and Conduct of Business) Regulations (SFLCBR) under the Securities and Futures Act. Regulation 13G(2)(b) in essence states she would not be deemed independent if she is a substantial shareholder, director or executive officer of a for-profit corporation and has in the current or immediately preceding financial year made any payment to, or received any payment from, a &ldquo relevant person&rdquo , which includes a related corporation of the manager. Ms Ng was a non-executive director and shareholder of Blackwood, which held a 45% indirect interest in the manager that was sold to InfinitySub. She resigned as non-executive director of Blackwood on October 25, 2019. About two months prior, she was appointed as a non-independent non-executive director of the manager. On November 1, 2019, she was re-designated from non-independent to independent. The manager&rsquo s justified the re-designation of Ms Ng from non-independent to independent on the following grounds:
Additionally, the Nominating and Remuneration Committee (NRC) and board of the manager had deliberated and approved her re-designation, with Ms Ng recusing, and the board was satisfied that she is able to act in the best interest of the unitholders of the REIT as a whole notwithstanding her deemed business relationship. On (a), it should be noted that Regulation 13(G)(2)(b) refers to the &ldquo current or immediately preceding financial year&rdquo and the payments that Ms Ng received were within the period specified in the Regulation. The purpose of this regulation is to capture recent business relationships, not just whether there continues to be payments to her. Submitting a self-confirmation of independence is useful if accompanied by full disclosure of any relationships which may affect, or be perceived to affect, the independence of a director, including relationships which may not be specifically captured by regulations, listing rules or the Code. The nominating committee (NC) can then use this to determine the independence of the director. But the self-confirmation itself is a matter of ownself confirming ownself as independent. On Ms Ng fulfilling the requirements of the Code of Corporate Governance, it should be noted that while the Provision in the Code on independence no longer includes business relationships, with such business relationships now covered in Practice Guidance 2, the Practice Guidance refers to payments of $50,000 aggregated over any financial year where received by a director, in the current or immediate past financial year. In its addendum, the manager did not disclose how much Ms Ng received, so it is unclear if the &ldquo letter&rdquo of the Practice Guidance was complied with. Independence is of course not just about compliance with the letter of the rules but the spirit. In this regard, Provision 2.1 states that &ldquo an &lsquo independent&rsquo director is one who is independent in conduct, character and judgement, and has no relationship with the company, its related corporations, its substantial shareholders or its officers that could interfere, or be reasonably perceived to interfere, with the exercise of the director&rsquo s independent business judgement in the best interests of the company.&rdquo Without transparency regarding how the price for the sale of Blackwood&rsquo s stake to InfinitySub was determined, stakeholders may find it difficult to be convinced that Ms Ng is now independent. I would also note that Provision 4.4 on the NC&rsquo s determination of independence of directors states that directors should disclose relationships, including business relationships, to the board. Footnote 15 states that this includes disclosing the amount of payments received. Did Ms Ng disclose this to the board? Further, the Provision states that if the board, on the advice of the nominating committee, still considers a director to be independent notwithstanding such relationships, the relationships and reasons should be disclosed in the annual report. For full transparency, I believe that the amount received by Ms Ng for the sale of her stake should have been disclosed. The re-designation of Ms Ng from non-independent to independent on November 1, 2019 effectively meant that she went to bed on October 31 as non-independent and woke up the next day as independent. In my view, such re-designation is rarely credible if the director has a recent business or other relationship with the listed company, or in Ms Ng&rsquo s case, the manager, and there is no real break in this relationship. In Ms Ng&rsquo s case, there was no meaningful break between her business relationship ending, and her appointment to the board and subsequent re-designation &ndash in fact, she was appointed to the board on August 27, 2019 and received the final payment for the sale of her shares on August 30, 2019. Further, her relationship with the manager goes further back. Ms Ng had served as a non-independent non-executive director for more than six years since Sabana REIT&rsquo s IPO, before resigning in May 2017, citing &ldquo certain internal dynamics within the company&rdquo . In April 2011, Ms Ng bought a 10% stake in Blackwood, which had a 45% indirect interest in the manager. Therefore, Ms Ng&rsquo s relationship with the manager as a non-independent non-executive director dates back to 2010, and she acquired a 4.5% indirect stake in the manager in 2011. She bought a stake in the manager and not the trust, which meant that her interests are aligned with the manager and not unitholders. At the time of her re-appointment to the board in August 2019, her indirect interest in Sabana REIT, by virtue of her stake in Blackwood which held a 45% interest in the manager which in turn held a 1.01% stake in the REIT, was negligible. Given that Ms Ng is legally trained and an experienced director, I am confident that she would not have given any undertaking to support the merger with ESR REIT that has proven to be highly contentious. Nevertheless, of all possible candidates in the market, why was she chosen given her long-standing relationship? What was the search and nomination process like? All these, in my view, raise further questions about her independence. I would add that the flexibility given by the regulations under both the SFA (for REITs) and Business Trust Act (for business trusts), which allows the board to deem a director to be independent notwithstanding the presence of relationships which may compromise independence, makes the determination of independence of directors rather nebulous. For listed companies, similar flexibility provided in the Code (except for relationships now covered in the listed rules) has led to the considerable scepticism about the true independence of independent directors. For REITs and business trusts, this flexibility creates even more concerns because directors are appointed by the shareholders of the managers, not the unitholders of the trust. Unitholders have no ability to appoint or remove directors, and at best, are just given a right to endorse them in five trusts here &ndash and not Sabana REIT. Finally, in Sabana REIT&rsquo s case, where questions about the independence of the directors becomes particularly pertinent given the proposed merger with ESR REIT, this episode will just give more ammunition to minority unitholders to question the merits of the merger and the independent directors&rsquo support for it. |
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| 11-Sep-2020 21:32 |
Alpha Integrated RE
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SABANA REIT
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Sabana will survive without ESR VOTE NO !
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| 11-Sep-2020 09:44 |
Alpha Integrated RE
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SABANA REIT
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"However, even if the proposed merger with ESR-Reit falls through, Sabana Reit " will survive" said Mr Han."
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| 11-Sep-2020 09:21 |
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ESR and Sabana respond to questions from Sias over proposed merger
Executives reassure that ring fencing is in place to ensure perceived conflicts of interest are managed
THE Securities Investors Association (Singapore), or Sias, said in a statement on Thursday that it had conducted a dialogue with the managers of Sabana Shari' ah Compliant Real Estate Investment Trust (Sabana Reit) and ESR-Reit, to address questions from Sias over their proposed merger.
The dialogue was attended by Sias' chief executive David Gerald chief executive and executive director of ESR-Reit' s manager Adrian Chui chief executive of Sabana Reit' s manager Donald Han and Justin Tang, head of Asian research at United First Partners in Singapore.
On July 16, ESR-Reit and Sabana Reit reannounced the proposed merger of the two Reits after earlier talks in 2017 fell through.
This has since drawn much discussion from shareholders over concerns such as the sale of Sabana Reit' s assets below net asset value (NAV) as well as accusations of conflicts of interest with ESR Cayman, as it owns substantial stakes in both ESR-Reit' s and Sabana Reit' s managers.
At the fireside chat, Mr Chui said that the proposed merger resurfaced this year as part of the " continuation of (its) next stage of growth plans" , following ESR-Reit' s merger with Viva Industrial Trust in 2018.
Post merger with Viva, ESR-Reit has " benefited a lot" from the greater trading liquidity, and debt cost has come down " tremendously" .
He added that ESR-Reit is " now able to access more opportunities . . . (and) investment opportunities have been coming (in) more often," proving that " size does matter when it comes to Reits" .
As for Sabana Reit, Mr Han said that with the Reit being one of the smallest in Singapore, it is " looking to sustain growth moving forward" , and that the proposed merger " presents that opportunity for (it) to be on a bigger platform (and) have a deeper balance sheet" .
" On top of that, there is the potential to have a re-rating, with the chance to be included in global indices," he added.
Support for the proposed merger from analysts has been relatively positive thus far, given how the transaction may put Sabana Reit in a better position.
United First Partners' Mr Tang said that " high net worth individuals" he had spoken to, who bought Sabana Reit during its initial public offering, are " generally of the view that if this doesn' t happen, it is going to be very difficult for their investment in Sabana Reit to see the light of day" .
He added: " They feel that they have a better chance if they roll over their units into ESR-Reit, and from there, hope that if ESR-Reit' s unit price appreciates, then they might get to see daylight."
Addressing concerns over ESR-Reit' s low buyout offer for Sabana Reit at a 26 per cent discount to the latter' s book value, Mr Han said that being in a " very regulated market" , it is " not easy to achieve the kind of price (investors) are looking for" .
Additionally, time, cost of funds and ability to raise financing are also factors for Sabana Reit to be able to trade at unit prices closer to NAV.
On issues regarding the conflict of interest with ESR Cayman, Mr Han said that " there are necessary safeguards involved" , and that the Reit does not share offices with ESR Cayman nor information regarding it.
All of its board of directors are also independent.
Similarly, ESR-Reit' s Mr Chui said that " ring fencing and structures are put in place to ensure that such perceived conflicts of interest are managed" .
The proposed merger will also bring down the cost of debt for both Reits, said Mr Han and Mr Chui.
" In the immediate term, there are cost savings . . . and we are refinancing Sabana Reit' s existing cost of debt . . . So immediately, unitholders on both sides are actually having lower costs on top of increased tenure," said Mr Chui.
He added that post merger, the enlarged Reit - with 75 properties and a combined value of S$4 billion - will have " much more tenants" and become " much more diversified" , improving its credit profile.
However, even if the proposed merger with ESR-Reit falls through, Sabana Reit " will survive" said Mr Han.
The Reit has plans to sell its underperforming properties and expand its portfolio overseas, though plans are " fraught" as a result of the Covid-19 pandemic.
" By being a merged entity, it would accelerate our positioning to be able to capitalise on the growth factor, in particular, unutilised plot ratio, and to be able to facilitate growth in acquiring properties abroad," added Mr Han.
Should investors choose to vote against the transaction, Mr Tang from United First Partners said that retail minority unitholders " need to be prepared" .
He added: " If they do not get onboard a bigger ship, they will still survive, but the waters out there are going to be choppy."
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| 07-Sep-2020 09:13 |
Alpha Integrated RE
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SABANA REIT
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Call for Sabana Reit top management, IDs to quit if ESR deal falls through
FUND managers Quarz Capital Management and Black Crane Capital in a letter on Monday called for the senior management and independent directors of Sabana Shari' ah Compliant Industrial Real Estate Investment Trust (Sabana Reit) to resign if a proposed merger with ESR-Reit falls through.
This is so that they can be replaced with people who can develop and execute alternative strategies to grow the real estate investment trust (Reit), Quarz chief investment officer (CIO) Jan Moermann and Black Crane CIO Peter Kennan wrote.
To ensure independence from ESR Cayman and remove any conflict of interest, the replacement directors should also be proposed and voted in by independent unitholders who are not from ESR Cayman, which is the sponsor for both Sabana Reit and ESR-Reit, Mr Moermann and Mr Kennan said.
Quarz and Black Crane, who claim to act for and advise funds and entities that collectively own more than 10 per cent of Sabana Reit, have said they would vote against the proposed merger at the current terms at an upcoming extraordinary general meeting.
The scheme requires the approval by a majority in number of independent unitholders representing at least 75 per cent in value of the units held by those present and voting.
Those abstaining from voting are ESR-Reit' s manager, its concert parties and the common substantial unitholders of both Reits. They include ESR Cayman, which holds 20.88 per cent of Sabana Chinese billionaire Tong Jinquan, who holds 3.3 per cent Wealthy Fountain Holdings and e-Shang Infinity Cayman. Sabana' s manager will also abstain from voting.
In their letter which was addressed to the CEO and management of Sabana Reit' s manager as well as to Sabana Reit' s board, Quarz and Black Crane thanked the Monetary Authority of Singapore (MAS) for acknowledging the potential conflict of interest in ESR Cayman' s ownership of both Reits' managers.
Last month, MAS clarified that its regulatory framework does not prohibit a shareholder group from owning substantial stakes in two Reit managers managing trusts invested in the same property class.
It was responding to an earlier letter from Quarz, Black Crane and a group of minority unitholders in which they voiced potential " severe" conflicts of interest arising from ESR Cayman' s controlling ownership of both managers, among other concerns about the merger.
In its response, the financial regulator said it might require financial institutions to put in place additional measures to address specific risks where needed, including that of conflicts of interest. " We have done so in the case of ESR-Reit and Sabana Reit," it said.
MAS pointed out there were regulatory safeguards under the Securities and Futures Act to mitigate potential conflicts of interest. For instance, independent directors must make up at least half of boards of Reit managers where unitholders do not have the right to appoint directors.
For Sabana, its manager' s board is composed entirely of independent directors, with no representation of directors from either the sponsor or ESR-Reit' s manager, the Sabana manager clarified in a filing on Aug 28. There is also no overlap of management teams between the Sabana manager and the ESR-Reit manager, it added.
Separately, Hong Kong-listed ESR Cayman issued a statement on Aug 28 explaining that its stake in Sabana is held through a trust, with an independent party acting as trustee. ESR Cayman said information related to Sabana Reit' s operations, acquisitions, divestments and strategic directions stay within the Reit' s manager. It has also not nominated any directors to the board of Sabana Reit' s manager.
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| 31-Aug-2020 09:01 |
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SABANA REIT
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Should Sabana Reit minorities ask board, senior personnel to resign if merger does not succeed?
After flurry of statements last week, the merger can only be stopped now if enough minorities vote against it
VARIOUS parties involved in the proposed merger of ESR-Reit and Sabana Shari' ah Compliant Industrial Real Estate Investment Trust (Sabana Reit) issued statements over the past week that clearly marked out their positions.
The Monetary Authority of Singapore (MAS) stated that its regulatory framework does not prohibit a shareholder group from owning substantial stakes in two Reit managers, even if they are managing Reits invested in the same property class.
MAS also outlined the regulatory safeguards to mitigate conflicts of interest. In particular, Reit managers and their directors have a legal obligation to prioritise the interests of unitholders over those of the Reit manager and its shareholders.
On the proposed merger itself, MAS noted that only Sabana Reit' s minorities will get to vote at the Reit' s extraordinary general meeting.
Separately, Hong Kong-listed ESR Cayman issued a statement explaining the steps it has taken to ensure that no conflicts of interest arise from its ownership for the managers of Sabana Reit and ESR-Reit.
Notably, its stake in Sabana Reit' s manager is held through a trust with an independent third-party trustee. Sabana Reit and ESR-Reit are also managed separately from each other, with no overlap of staff and no sharing of information. On top of that, ESR Cayman has not nominated any directors to the board of Sabana Reit' s manager.
Finally, Sabana Reit' s manager provided written responses to several questions about the merger, which flatly dismissed some of the key criticisms and concerns that have been raised about the transaction.
Among the concerns is that the 43,000 sq ft of retail space that is being added to Sabana Reit' s flagship property, New Tech Park, has not been adequately considered under the merger deal.
In response, Sabana Reit' s manager said " the retail component is envisaged to be completed in Q1 2021 and cannot be directly attributed to the merger" . The manager went on to rubbish the idea that the retail space could generate S$4.4 million in net property income (NPI) in FY2021, and lift Sabana Reit' s distribution per unit (DPU) by 10 per cent, as some investors had suggested.
Using more conservative assumptions, the manager said NPI contributions from the retail space would be closer to S$2.7 million in FY2021, and that the boost to DPU would be " considerably lower than" 10 per cent.
The manager also insisted that unitholders of Sabana Reit should not be concerned about the effective price of their units under the merger being a steep discount to book value, in part because they would still be invested in the enlarged Reit.
Under the merger deal, which was unveiled on July 16, holders of every 100 units of Sabana Reit will receive 94 units of ESR-Reit. Based on the ESR-Reit' s reference price of S$0.401 (defined as its volume-weighted price from June 10 to July 9), unitholders of Sabana Reit would effectively be getting paid about S$0.377 for each unit they own.
This is more than 26 per cent below its net asset value (NAV) as at June 30 of S$0.51 per share.
According to pro forma estimates, unitholders of Sabana Reit would benefit from DPU accretion of 12.9 per cent but suffer NAV dilution of more 20.7 per cent. They will also be invested in a Reit with sharply higher gearing - 41.7 per cent instead of 33.7 per cent.
Up to minorities
For minority unitholders of Sabana Reit, the flurry of statements last week was a clear message that the only way the merger with ESR-Reit can be stopped now is if enough of them vote against it.
Quarz Capital Management and Black Crane Capital, which claim to advise entities that collectively own more than 10 per cent of Sabana Reit, have already said they will vote against merger. But they do not have sufficient clout to scupper the deal on their own.
The proposed merger requires the support of at least 50 per cent of Sabana Reit unitholders, holding at least 75 per cent of its units, present and voting at a unitholder meeting. The Reit' s sponsor, which holds 20.88 per cent, and investor Tong Jinquan, who holds 3.3 per cent, will abstain from voting.
Which way will the rest of Sabana Reit' s minority unitholders vote? And, what will it mean for Sabana Reit' s market price?
One theory I have heard is that unitholders of Sabana Reit are currently in a no-lose situation. If the merger deal is approved, ESR-Reit is very likely to rally strongly and pull Sabana Reit up in lockstep with the 0.94 exchange ratio.
On the other hand, if the deal is not approved, Sabana Reit' s market price is unlikely to dip too much because it is already trading at a steep discount to NAV. Moreover, Sabana Reit' s manager will probably then begin looking at alternative ways of unlocking value.
Sabana Reit closed Friday at S$0.37, while ESR-Reit closed at S$0.385.
Yet, after reading what Sabana Reit' s manager has said this past week, investors may not be convinced that it will be able to quickly unlock value if the merger is not approved.
For one thing, the manager indicated that there are significant challenges in effecting the sale of the Reit' s assets, in part because of regulation. The manager also seems uncertain about being able to stretch Sabana Reit' s balance and expand its portfolio of income-generating assets.
As at June 30, Sabana Reit had S$284.4 million in total borrowings and a gearing ratio of 33.7 per cent, which the manager characterised as " prudent" and " healthy" in press statements and presentation slides.
Yet, the manager indicated last week that its actual debt headroom is quite limited. It noted that 93.8 per cent of Sabana Reit' s property portfolio is already secured against its current borrowings of S$284.4 million.
" That leaves only 6.2 per cent of the portfolio, representing two assets valued at S$51.7 million, which may be encumbered for any additional secured financing (including for asset enhancement initiatives and working capital purposes)," the manager said.
That would enable Sabana Reit to secure only about S$25.9 million in additional debt, the manager said.
Fair alternative
Unitholders of Sabana Reit should perhaps consider asking the board and other senior personnel of the manager for an undertaking that they will resign in the event the merger proposal they are championing does not go through.
This is not a big ask. If the merger with ESR-Reit goes through, their jobs would become redundant anyway.
The board and senior management of Sabana Reit would also surely want to avoid taking up new appointments at any other affiliate of the ESR Cayman group immediately after the merger so as not to compromise their perceived independence in the handling of the transaction.
More importantly, if unitholders of Sabana Reit decide that they are better off not merging with ESR-Reit, they ought to have a manager that shares that view.
With the prospect of a new board and fresh senior personnel in the wings, investors would have greater confidence that voting against the merger will not doom Sabana Reit but potentially lead to fresh initiatives to unlock the value of its chronically depressed units.
Unitholders of Sabana Reit would then be able to properly consider the merits of the merger proposal versus sticking with the current asset portfolio.
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| 18-May-2018 12:53 |
Alpha Integrated RE
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SABANA REIT
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😂
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| 18-May-2018 12:52 |
Alpha Integrated RE
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SABANA REIT
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Maybe Sabana will get Halt too!
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