THERE is &ldquo no assurance or certainty&rdquo that existing staff of Sabana Industrial Reit&rsquo s : M1GU +1.18%manager would be willing to stay on if resolutions at the extraordinary general meeting (EGM) requisitioned by Quarz Capital are passed, given the uncertainties during the interim period.

 

Sabana Real Estate Investment Management (SREIM) made this point in the EGM circular published on Friday (Jul 21), even as it noted that the manager will comply with its obligations under the relevant law, including providing &ldquo reasonable assistance&rdquo to the trustee during the interim period.

 

Donald Han, chief executive of SREIM, noted at a media briefing on Friday that staff with work experience in a capital markets services (CMS) licensee are &ldquo well sought after&rdquo by other real estate investment trusts (Reits), funds and family offices.

 

&ldquo We can&rsquo t stop people from leaving, but, again, we will do our best,&rdquo he said.

 

Sabana Reit said it will hold an EGM on Aug 7 for unitholders to vote on two ordinary resolutions: to remove SREIM as the manager and direct the trustee to internalise the Reit&rsquo s management function.

 

There will be no option for unitholders to participate virtually, the Reit manager said.

 

Activist investor Quarz requisitioned the EGM in June, rationalising that internalisation of the manager would bring benefits to unitholders by providing cost savings once the external manager is removed.

 

But Sabana Reit&rsquo s sponsor and largest unitholder, ESR Group, called Quarz &ldquo highly reckless and irresponsible&rdquo for not providing any plans for the management of the Reit should its resolutions pass.

 

Based on the EGM circular, if SREIM and/or the property manager are unable to retain their staff and lose their capability to serve as the manager or property manager of the Reit during the interim period, the responsibility of managing Sabana Reit and its properties would potentially fall onto the trustee, or professional advisers the trustee appoints.

 

&ldquo The longer it takes for the trustee to implement and effect the change, the greater the risk to the ongoing viability of Sabana Industrial Reit,&rdquo the circular indicated.

 

The trustee for Sabana Reit noted that a considerable amount of time &ndash expected to be at least 12 months and potentially significantly longer &ndash and costs would be required to internalise the Reit management function.

 

The steps required include obtaining a relevant CMS licence from the Monetary Authority of Singapore (MAS) for the new internal or external manager. Fees, costs and expenses from professional advisers that the trustee appoints would also be reimbursed out of the assets of Sabana Reit.

 

In Sabana Reit&rsquo s first-half results released this week, independent auditors EY flagged a material uncertainty that &ldquo may cast significant doubt&rdquo on the Reit&rsquo s ability to continue as a going concern depending on the outcome of the EGM.

 

The removal of SREIM as the manager would trigger the removal of a manager clause that constitutes a review event under various unsecured facilities.

 

The potential consequences of removing the manager represent a &ldquo real risk&rdquo , and are not a &ldquo scare tactic&rdquo , Han said on Friday.

 

ESR Group had earlier proposed the internalisation resolution be tabled as an extraordinary resolution instead of an ordinary one, as it effectively amounts to an amendment to the trust deed.

 

However, Quarz noted that an extraordinary resolution would raise the bar required for shareholder approval &ndash from a majority to at least 75 per cent of those voting.

 

The ordinary resolutions at the EGM on Aug 7 will require a simple majority from unitholders.

 

Earlier this week, Quarz clarified a &ldquo typographical error&rdquo in its EGM requisition notice.

 

It previously said an increase in the dividend amount would mainly come from &ldquo cost savings of about S$7.25 million&rdquo of fees and net profit that unitholders pay to the external manager and the shareholder.

 

Quarz clarified that it meant that a higher dividend would come from &ldquo cost savings from the S$7.25 million&rdquo of fees and net profit that unitholders currently pay to the external manager and its shareholder.

 

Quarz is the third-largest unitholder in Sabana Reit after ESR Group and Volare Group. It has a 14 per cent stake worth around S$66.4 million, based on a unit price of S$0.43.

 

Its website stated that the activist investor is a registered fund management company (RFMC) in Singapore. MAS regulations indicate that the total value of assets an RFMC can manage must not exceed S$250 million.