Sabana Shari'ah REIT

[steadyvalue]

https://www.businesstimes.com.sg/compani...ote-favour

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

UNITHOLDERS of Sabana Industrial Real Estate Investment Trust : M1GU 0% (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 : CJLU 0%, 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.

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.

[CY09]

From my previous post: "friendly buyer" should not happen in business. Its the one who gives the most value. If the representative who is disposing the asset accepts a lower price than other offers, the representative is not acting in the best interest of the company and pherhaps should consider a political career to join a political party who has been in the news for its members' lack of integerity and ethics.

From Treeofprosperity blog: "A key issue to the anger investors are feeling is that management tried to convince them to let ESR REIT absorb their assets for a lower value in the past..."

As said, Sabana Ex-managers were unlikely acting in good faith for Sabana Unitholders. The head (who is now jobless) should consider joining politics given his calibre and track record Overall this shows that is a dire need for all REIT managers to act in good faith when evaluating the purchase of assets especially when the seller is of the same company. Manulife REIT faced the same problem where during the heydays its property were sold at high value to Manulife REIT

The REIT managers of Keppel, Capitaland, City Development, UOB, OUE, Mapletree will be under close scrutiny given the track record of their property development's division propensity to offload assets into the REITs it is managing.

[weijian]

As said, Sabana Ex-managers were unlikely acting in good faith for Sabana Unitholders. The head (who is now jobless) should consider joining politics given his calibre and track record  Overall this shows that is a dire need for all REIT managers to act in good faith when evaluating the purchase of assets especially when the seller is of the same company. Manulife REIT faced the same problem where during the heydays its property were sold at high value to Manulife REIT

The REIT managers of Keppel, Capitaland, City Development, UOB, OUE, Mapletree will be under close scrutiny given the track record of their property development's division propensity to offload assets into the REITs it is managing.

hi CY09,

IIRC, the Trustee will probably direct the existing manager to manage it during the interim period. This interim period can be ~2years. So technically, the head will not be jobless now. After the interim period is over, I reckon the parent ESR may have a job for him/her.

Nonetheless, you bought up a good point that Sponsors need to "watch out" now. Moving forward, the balancing act between extraction of value for themselves VS their captive AUM needs to be more delicate and careful. I remember 75% is needed to remove the manager for Trust structure, so there isn't great danger for Trust type of AUM.

Looking at the EGM results:
397mil for removal
294mil against removal

Top 3 shareholders for Sabana:
ESR 214mil
Volare 176mil
Quarz 154mil

Mathematically, it is not possible for ESR and Volare to have voted together (Top1 and Top2). Rather it is probably Top2 and Top3 voting together (Volare and Quarz). As for minorities, it was roughly equally split with ~53% going to ESR and 47% to Quarz. 

So this brings forth another lesson for AUM operators - you probably want to reduce the "dividend in specie" of REIT shares, and maintain a sizeable ownership that is at least comparable/higher to the next few substantial shareholders combined!

I will be watching closely on the success of Sabana REIT in their manager internalization journey, so as to continue to assess the stickiness of AUM type of business! (Eg. in Capitaland Investment's slides, you will see them classify their listed AUM as "perpetual"!)

[steadyvalue]

As said, Sabana Ex-managers were unlikely acting in good faith for Sabana Unitholders. The head (who is now jobless) should consider joining politics given his calibre and track record  Overall this shows that is a dire need for all REIT managers to act in good faith when evaluating the purchase of assets especially when the seller is of the same company. Manulife REIT faced the same problem where during the heydays its property were sold at high value to Manulife REIT

The REIT managers of Keppel, Capitaland, City Development, UOB, OUE, Mapletree will be under close scrutiny given the track record of their property development's division propensity to offload assets into the REITs it is managing.

hi CY09,

IIRC, the Trustee will probably direct the existing manager to manage it during the interim period. This interim period can be ~2years. So technically, the head will not be jobless now. After the interim period is over, I reckon the parent ESR may have a job for him/her.

Nonetheless, you bought up a good point that Sponsors need to "watch out" now. Moving forward, the balancing act between extraction of value for themselves VS their captive AUM needs to be more delicate and careful. I remember 75% is needed to remove the manager for Trust structure, so there isn't great danger for Trust type of AUM.

Looking at the EGM results:
397mil for removal
294mil against removal

Top 3 shareholders for Sabana:
ESR 214mil
Volare 176mil
Quarz 154mil

Mathematically, it is not possible for ESR and Volare to have voted together (Top1 and Top2). Rather it is probably Top2 and Top3 voting together (Volare and Quarz). As for minorities, it was roughly equally split with ~53% going to ESR and 47% to Quarz. 

So this brings forth another lesson for AUM operators - you probably want to reduce the "dividend in specie" of REIT shares, and maintain a sizeable ownership that is at least comparable/higher to the next few substantial shareholders combined!

I will be watching closely on the success of Sabana REIT in their manager internalization journey, so as to continue to assess the stickiness of AUM type of business! (Eg. in Capitaland Investment's slides, you will see them classify their listed AUM as "perpetual"!)

Including Tong who is ESR related party and report 39mil units in April 2023, only 28m voted with against the resolution which showed very little support for ESR and related parties. 

Most of shareholders voted with Quarz.

ESR probably now have to think hard to probably resolve the issue at Sabana by doing a full takeout so that the possibility of setting up an internal manager remains a theory. 

Probably the management now rethinking why they didnt raise the price in the merger back in 2020 

[header]

I hope all unitholders will quickly unite and pass the future EGMs on change of trust deed and appointment of new manager. These will require 75% unitholders approval. If not, the trustee will just continue to incur professional fees and staff of current manager will also leave.

Just worried that ESR will purposely disagree with these changes so the Sabana fails. While this may seem irrational, they may do it if they deem a successful Sabana will make them lose creditibility and jeopardise their other REITs.

[specuvestor]

I'm wondering if anyone knows how this works if there is no 75% unitholder approval to change the trust deed. I didn't read the detail but is SREIM role as manager enshrined in the trust deed?

Will be interesting to see how the Trustee not follow the will of the EGM or follow the EGM but infringe the deed? Good learning for observers.

[ghchua]

I'm wondering if anyone knows how this works if there is no 75% unitholder approval to change the trust deed. I didn't read the detail but is SREIM role as manager enshrined in the trust deed? 

Hi specuvestor,

The changes in trust deed is needed as the current wordings does not include an internal manager. Just like when two REITs merges, trust deed changes are needed to cater for it. It is not specific to SREIM, but rather generic wordings to cater for an external manager.

If the trust deed changes is not approved by unitholders, then we will be in a stalemate situation. Meaning, internalization had been approved by unitholders but the trustee could not execute it as the trust deed could not be changed to cater for it. We could then fall back to the external manager model again (might not be SREIM again since they have been removed) or if there are still disagreements, I guess liquidation of the trust is the best solution to settle it once and for all.

Let's see how things progress from here before I comment further.

[specuvestor]

Thanks so much ghchua for the clarity. So it’s to change from external to internal manager not SREIM per se

Yes for merger the trust deed have to change cause a trust cannot have 2 trust deeds

As I mentioned below a trust is not wholly a commercial enterprise. Trustee has a duty of care to the beneficiaries. Then it has to express a view that internal manager is not better off than external manager, rather than an expected typical answer: “the trust deed say so”.


https://sso.agc.gov.sg/Act/TA1967

If Trustee is only responsible for setting up the Internal Manager then they should just get a single upfront fee. They have a fiduciary duty receiving recurring fee to act on behalf of the beneficiary which is the unit holders.

Like r0n mentioned, this is not a company with directors. There is actually no shareholders in the Trust and if I am not wrong it is not under the Companies Act. The Trust structure is that the assets are held under the Trust entity which the Trust will manage on behalf of the beneficiary, including appointing a Manager. Hence the Trustee  better have a good idea whether the Manager that they appointed is doing a good job, rather than stay passively silent.

It is governed by Trust law and the Trust has to be equitiable to all the beneficiaries not just the major beneficiaries. Think of it this way that you set up a Trust for your children with 50% going to eldest and 25% for your second and third child. The Trustee has to make sure that the 2nd and 3rd child are not marginalised even though the eldest has a bigger say on who to appoint as the manager or disposal etc.

My main gripe about Trust structure is that the Trustees are passive and not taking care of the interest of the beneficiary. Remind me there was a trust that sold a property and all 3 quotes were same price or something? Trustee didn't even blinked at the coincidence.

Think Trustees should be liable for breach of fiduciary duties and that will change the Trust landscape

I think Trustee is only responsible for setting up the Internal Manager. 

Once fully setup, Internal Manager will run the REIT for shareholders who are the owners. old manager will be fired and cost savings given back to shareholders in higher DPU.

Shareholders will vote in directors who will manage the REIT, like a normal company. But because its not owned by sponsor, the internal manager main incentive is to increase DPU and share price.

Unlike External manager who wants to increase management, acquisition and divestment fees resulting in placement and rights.

[steadyvalue]

Don't see any need to change trust deed. In croesus case, the manager was also internalised with a simple majority vote. 

I believe the only outstanding part is resolution 2 part 4-6 which says amendment of trust deed to allow shareholders to appoint, remove and re-appoint directors.

But even that should be able to incorporate without changing trust deed as can be seen from croesus as well. Both are trusts.

[ghchua]

Don't see any need to change trust deed. In croesus case, the manager was also internalised with a simple majority vote. 

I believe the only outstanding part is resolution 2 part 4-6 which says amendment of trust deed to allow shareholders to appoint, remove and re-appoint directors.

But even that should be able to incorporate without changing trust deed as can be seen from croesus as well. Both are trusts.

Hi steadyvalue,

I beg to differ with you. Croesus Retail Trust is a business trust, not a REIT. You might ask, both are trusts so what is the difference?

A business trust is a hybrid structure consisting a company and a trust. Meaning, it is like a stapled structure. Since it already has a company in place in the structure, there is no need for amendment of trust deed for internalization. One can just fall back on the company side of the structure.

A REIT, however, is only a trust by itself, holding the underlying assets. The assets are managed separately by a manager. The wordings are really based on external manager structure, since they are supposed to be separate. Therefore, this needs to be changed for the purpose of internalization.