Sabana Shari'ah REIT

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(06-03-2024, 09:39 AM)header Wrote: This is a mess...
Directionally, internalisation makes sense.  But Quarz makes few errors in how they executing it, IMHO.
These include:
2) accusing/ implying ESR having no integrity. This makes ESR have to fight them to save their own reputation
3) I think Quarz didnt have a side talk with ESR to buy or sell their stake in REIT. Now is impossible due to (2)
Passing all the resolutions proposed in coming EGM will not solve the issue and likely will only lengthen the pain, unless MAS step in.  Best is either ESR or Quarz exit.

hi header,
I think (3) is probably not probable. Quarz owns ~14% and ESR owns slightly over 20%. If Quarz were to acquire the entire 20% stake from ESR, it would cross 30% and would trigger the threshold for a mandatory general offer. This means Quarz needs to extend the entire offer to everyone else. They could then jolly well end up with >50% and Sabana REIT becomes their subsidiary.

Quarz is in the business of buying undervalued assets, not managing asset with low ROA. ESR is in the business of managing AUM and so it will not be selling without a good price (whether is it the asset manager or their AUM)
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Takeaways from Sabana REIT's March 8 EGM as cost and complications bite
https://www.theedgesingapore.com/news/re...tions-bite

Clearly, for investors, what has been missing from the local S-REIT regime is education on the structure of S-REITs. For instance, not all unitholders are aware of the differences between the Business Trust Act 2004 and the Code on Collective Investment Schemes (CIS) Property Funds.

I guess the differences between a Business Trust structure like Croesus Retail Trust and Property Funds like Sabana REIT had been the contention of the discussions here previously. I think some unitholders do know the differences, but they simply refused to accept the trustee's interpretations of the trust deed.
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Most of these questions are about cost, which I think is missing the big picture. I guess it hurts for REIT owners to retain capital and not to distribute out as dividends?

IMHO, when facing "an opponent", one has put on their shoes and think like them. If one insists on own stance without considering the other party's position/thoughts, then most of the actions may actually come to naught.

QUESTIONS / COMMENTS RAISED AT THE EXTRAORDINARY GENERAL MEETING HELD ON 8 MARCH 2024

Question: Unitholder No. 8 inquired the rationale as to why the Trustee is not excluding the votes of interested parties at the EGM to propose amendments to the Trust Deed. He expressed his concern that this key issue is not being addressed.

Answer: The Trustee explained that it notes Unitholders’ differing views on this issue, but the issues should be considered sequentially. Since the Trustee’s position is that amendments to the Trust Deed are required, it intended to obtain clarity on that issue first via the Order 32 process before moving on to the question of voting.

https://links.sgx.com/FileOpen/Sabana%20...eID=795005
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The base rate for white collar office employee annual turnover is ~10-20%. A 47.6% turnover probably means that the staff are looking for new jobs back at the parent ESR, I suppose.

1Q 2024 INTERIM BUSINESS UPDATE

Total resignation rate since 7 June 2023 (Receipt of requisition notice) to 15 April 2024 stands at 47.6%
• The Manager has hired replacements for the various roles, of which about 26.7% of these positions have been filled by new hires; The Manager will continue to proactively hire to fill vacancies

https://links.sgx.com/FileOpen/Sabana_%2...eID=796594
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SGX RegCo had spoken. All parties can vote on Trust Deed Amendments, if an EGM is needed to implement internalisation.

https://links.sgx.com/1.0.0/corporate-an...92f8a23cfa
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Looks like game over for Quarz and REIT internalisation process.
Two-thirds of votes required for the amendments of the Trust Deed. No way for the sponsor to support internalisation.
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(22-04-2024, 12:08 PM)Shiyi Wrote: Looks like game over for Quarz and REIT internalisation process.
Two-thirds of votes required for the amendments of the Trust Deed. No way for the sponsor to support internalisation.

Hi Shiyi,

Not yet, the game is still on.

Reason being the main contention is whether Trust Deed Amendments for internalisation needs to be voted by unitholders via an EGM.

SGIC (includes Quarz) and trustee each has different interpretations of the above. The matter is now to be settled by the Court.
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https://www.businesstimes.com.sg/opinion...aged-reits

Singapore Reit sector will do better with internally managed Reits
Published Tue, Jul 23, 2024 · 05:00 AM

WE REFER to the article ‘Reit unitholders should not assume that an internal manager will automatically leave them better off’(BT, Jul 16) and would like to point to the substantial merits of internal managers for Reits. The facts are, as elaborated in an Ernst & Young paper, the debate on the merits of internal versus external management structure has already long been resolved in favour of the internal model. This is why in older and larger Reit markets such as the United States and Australia, the overwhelming majority of Reits there are internally managed.

Academic research has shown that internally managed Reits perform better. As early as in 1995, research showed that US internally managed Reits outperformed externally managed Reits by more than 7 per cent from 1985 to 1992. A study comparing the risk-adjusted performance of Australian Reits found that internally managed Reits also outperformed. Internally managed NetLink Trust and Croesus Retail Trust have also substantially outperformed their Singapore externally managed peers.

Beside Reits sponsored by GLCs such as Mapletree, CapitaLand and Keppel which have shown superior corporate governance and strong commitment to investors’protection, Reits investors have generally regarded the track records of the other sponsors as mixed and far from satisfactory.

While sponsors can provide a property pipeline, research has repeatedly shown that in many cases, Reits pay more for properties acquired from their sponsors than for assets acquired from third parties. Research also suggests that externally managed Reits are sometimes merely divestment vehicles for sponsors’ illiquid investment grade real estate which enables sponsors to recycle capital efficiently.

The review of Eagle Hospitality Trust uncovered that the external manager had not ensured that its sponsor provided security deposits on its master lease and did not prevent the sponsor from channelling loans to itself.

Both FT and Bloomberg have raised concerns at externally managed Digital Core Reit, which was spun out of the sponsor and listed on SGX in 2021. When Cyxtera filed for bankruptcy, it accounted for only 1.7 per cent of the sponsor’s revenue but more than 20 per cent of Digital Core Reit’s rental revenue.

The claims of higher financing costs is also unfounded. ESR Logos Reit – five times bigger than Sabana – reported cost of debt of 4.1 per cent. Sabana recently issued a 4.15 per cent bond post-vote to remove the external manager. Astute financiers rightly prioritise more important factors such as the property portfolio.

Under an internal manager model, all Sabana unitholders will own the internal manager which will only serve and work in the interests of unitholders. All unitholders will also have the right to vote in and remove directors. This increased corporate governance and rights will result in stronger accountability and unitholders’ protection. The profit earned by the external manager will be re-channelled back to unitholders resulting in higher distribution per unit (DPU).

While the internalisation has taken a longer time and higher cost, the trustee could have speeded up the process by five months if it had sought clarifications from the court right after the vote. With clearer precedence, the process will be substantially faster and cheaper. Sabana’s internalisation also developed from the failed merger to ESR Logo Reit in 2020 which if accepted, would have resulted in Sabana’s unit price to be at a significantly lower level.

Removing the manager and internalisation is the Monetary Authority of Singapore’s fundamental key pillar of unitholders’ protection. Without this protection, external managers will be fully entrenched – they can “do whatever they want” without any accountability. There would be a huge loss of confidence in the Singapore financial markets as investors essentially have zero recourse. The majority of current Reit unitholders currently have zero rights to appoint or remove any directors of their external managers.

Since 2014, Japan has accelerated key reforms to increase corporate governance and shareholder rights. This has successfully attracted investors and driven the equity market to a new high. The South Korean regulator and stock exchange have also initiated their Corporate Value-Up programme to reform and limit the rights of entrenched shareholder groups to attract investors.

As such, it is important that all Sabana unitholders vote for all the resolutions at the upcoming Aug 6 EGM which are for the internalisation. The successful internalisation at Sabana Reit will set a positive precedence and bring about stronger corporate governance, investors’ protection and the revival of the S-Reit market.
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(26-07-2024, 09:51 AM)steadyvalue Wrote: As such, it is important that all Sabana unitholders vote for all the resolutions at the upcoming Aug 6 EGM which are for the internalisation. The successful internalisation at Sabana Reit will set a positive precedence and bring about stronger corporate governance, investors’ protection and the revival of the S-Reit market.

IIRC from past voting patterns, the resolution will pass in Quarz's favor as long as the Volare is on board.

All resolutions for internalization can pass but as long as the court determines that the trust deed needs to be modified, then it all comes to naught. Of course, it is prudent for SGIC, whom have oversimplified the previous internalization process 1 year ago, to now "over complicate" it in anticipation of future obstacles.
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(26-07-2024, 10:21 AM)weijian Wrote:
(26-07-2024, 09:51 AM)steadyvalue Wrote: As such, it is important that all Sabana unitholders vote for all the resolutions at the upcoming Aug 6 EGM which are for the internalisation. The successful internalisation at Sabana Reit will set a positive precedence and bring about stronger corporate governance, investors’ protection and the revival of the S-Reit market.

IIRC from past voting patterns, the resolution will pass in Quarz's favor as long as the Volare is on board.
All resolutions for internalization can pass but as long as the court determines that the trust deed needs to be modified, then it all comes to naught. Of course, it is prudent for SGIC, whom have oversimplified the previous internalization process 1 year ago, to now "over complicate" it in anticipation of future obstacles.

With ESR losing their appeal, after also losing the injunction, the High Court ruling is that ESR will not be able to vote for the trust deed amendments needed for internalisation

Great result for Sabana shareholders who can finally proceed to complete internalisation and own the reit manager like netlink trust! 

Would have been much faster and cheaper if the Trustee had come to this conclusion themselves which is what Quarz has stated from the start, instead of after this long winding route

Wonder if the REIT can claim money back from the trustee and legal advisors for making such a grave error

https://www.businesstimes.com.sg/compani...-amendment

High Court dismisses ESR’s appeal to vote on Sabana Reit’s proposed trust deed amendment
The Reit will proceed with its extraordinary general meeting on Aug 6

THE Singapore High Court has thrown out an appeal by several ESR entities to vote on the proposed trust deed amendments of Sabana Industrial Real Estate Investment Trust (Sabana Reit).

It also ordered the entities to pay HSBC Institutional Trust Services (Singapore) – the Reit’s trustee – S$16,119.80 in legal costs, with the remaining costs and expenses to be paid out of the trust.

On Friday (Jul 26), the trustee noted that the court would issue reasons for its decision at a later date. It also added that the Reit would proceed with the extraordinary general meeting (EGM) on Aug 6.

In a statement seen by The Business Times, Sabana Growth Internalisation Committee (SGIC), set up by unit holders including Quarz Capital, said the ruling “clarifies and strengthens” investor protection in Singapore.
SGIC also urged all unitholders to vote for the resolutions in favour of the internalisation at the EGM.

The committee said: “The successful internalisation of Sabana Reit will allow all unit holders to own the manager. It will bring about stronger corporate governance, investor protection, higher distribution per unit (DPU) and the revival of the Singapore Reit market.”

The committee also asked Sabana’s manager and trustee to protect unit holders’ interest by returning costs and DPU withheld to them.

It also requested the sponsor and the owner of the trust’s current manager to protect jobs, uphold corporate practices, as well as waive non-compete agreements and allow the current staff of the external manager to join the new entity.

ESR’s appeal came after the court in May ruled that the trust deed amendments are required to effect the internalisation of Sabana’s manager, but barred the entities from voting on them.

The court ruling arose from an Order 32 application submitted by the trustee in January to clarify steps for the internalisation process.

In the application, the trustee sought court declarations that proposed amendments to the trust deed were required to implement internalisation. It also sought a declaration on whether ESR entities ought to be permitted to vote on the amendments.

ESR entities were prohibited from voting as the court deemed them to have an interest from fee income the external manager earns.
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