Sabana Reit unitholders approve removal of manager, with 57.5% of vote in favour

UNITHOLDERS of Sabana Industrial Real Estate Investment Trust (Sabana Reit) voted to remove Sabana Real Estate Investment Management (SREIM) and kick off the process of internalising the Reit’s manager.

At an extraordinary general meeting (EGM) on Monday (Aug 7), unitholders voted on two resolutions. The first was to remove SREIM as the Reit’s manager as soon as practicable. Out of 691 million votes cast, 57.5 per cent were in favour of the resolution. The Reit has nearly 1.1 billion units in issue.

The second resolution was to effect the internalisation of the Reit management function by incorporating a subsidiary wholly owned by the trustee, and appointing it to act as Sabana Reit’s manager. For this resolution, 55.6 per cent were in favour.

Their decision is a landmark for the Singapore Reit market, which has never seen an internally managed Reit. Netlink NBN Trust , which is internally managed, is a business trust.

The EGM had been requisitioned in June by activist investor Quarz Capital, which has a 14 per cent interest in the Reit.

Hong Kong-listed ESR Group, which owns SREIM and has a 20.6 per cent interest in Sabana Reit, had been against the internalisation.

At the EGM, SREIM had reiterated points previously made: That the removal of an external Reit manager and internalisation of the management function was unprecedented in Singapore, and that the Reit’s trustee had said such a move could take at least 12 months or longer to complete.

After the manager’s presentation, Quarz encouraged unitholders to vote in favour of the resolutions and reminded them that SREIM had also previously recommended unitholders give the green light for a merger of Sabana Reit with ESR-Reit (now ESR-Logos Reit) at an unfavourable price.

After the results were announced to some cheers from investors, Quarz urged staff of SREIM to stay on and join the internalised management team.

Several investors present at the EGM told The Business Times they believed that an internalised manager would be cheaper and thus boost distributions per unit.

“Although there will be a turbulent (period) this year or so, we can overcome it. We have gone through a lot of troubled waters in Sabana Reit,” said one investor who has been a Sabana Reit unitholder since its 2010 initial public offering.

Some investors also pointed to the example of Croesus Retail Trust, a retail business trust that internalised its manager in 2016, as an example of an internally managed trust that gave good returns to its unitholders. Croesus was delisted in 2017 when it was acquired by US private equity giant Blackstone.

They were also hopeful the current management team would continue to work with Sabana Reit. One investor, Louis Lee, said SREIM’s management had done a reasonable job and there should be no reason for them to fear losing their jobs.

“It’s most heartening to know that (Quarz) extended the olive branch to all those people who want to stay behind and contribute to the better success of Sabana Reit,” he added.

Another retail investor, who gave his name as Benjy, suggested that the Reit could also take the opportunity to buy SREIM “at an acceptable price”. This would smooth the transition, he said.

“Internalising is definitely a plus. Every unitholder will gain. The devil is in the details (of the) implementation,” he added.

In a statement following the EGM, Donald Han, chief executive of SREIM, said Sabana Reit proved “small but significant” with its “landmark EGM outcome”.

“The Reit will now commence the internalisation process and re-define the S-Reit landscape,” he said.

Tan Cheong Hin, chairman of SREIM’s board of directors, said the manager respects the removal decision. Both Tan and Han thanked members of SREIM’s management team and board.

ESR Group said in a statement it was disappointed that the resolutions were passed. It now expects the Reit trustee to appoint appropriate advisers and come up with a plan to safeguard the interests of all unitholders.

Quarz, in its statement, said it is “highly confident that Sabana’s bankers will support the more than 10,000 unitholders, many of whom are Singaporeans and also their customers”.

The trustee of Sabana Reit had on Jun 30 entered into a facility agreement with UOB for up to S$100 million in sustainability-linked term and revolving facilities. The facility agreement had contained provisions relating to ESR’s shareholding and places restrictions on any change of the manager or property manager of the Reit.

A UOB spokesperson declined to comment.

Units of the Reit closed flat at S$0.405 on Friday, before the Reit’s manager called for a trading halt on Monday morning.