Sabana Reit unit holders vote to switch external manager with internal one in first for S’pore Reits

SINGAPORE - In a surprise outcome and an unprecedented move, Sabana Industrial Real Estate Investment Trust (Sabana Reit) unit holders voted on Monday in favour of ousting its existing external manager and replacing it with an internal one.

The dust has yet to settle, but some investors are already voicing concerns over how this decision will play out in practice.

Up to now, all 42 Reits and trusts listed on the Singapore Exchange have had an external manager. In the United States – the world’s largest Reit market – most Reits now run on an internal-manager model.

Removing the manager and appointing an internal management alternative were the two key resolutions put forward at a contentious extraordinary general meeting (EGM) on Monday.

The EGM

had been requisitioned by activist investor and unit holder Quarz Capital Asia on June 7.

Sabana Reit’s current manager is owned by its sponsor and largest unit holder ESR Capital, which holds a 20.6 per cent stake in the Reit.

An internal manager is generally owned by the Reit and its unit holders, while an external manager is owned by a third party, such as the Reit’s sponsor.

The vote to remove the manager was passed with 57.46 per cent in favour and 42.54 per cent against, while the second resolution to appoint an internal manager was approved by a 55.6 per cent majority, with 44.4 per cent in opposition.

A key unit holder, Swiss-based conglomerate Volare Group, is believed to have voted in favour of the resolutions. It owns 16.01 per cent of Sabana, while Quarz holds 14.01 per cent.

The Straits Times has contacted Volare for comment.

Quarz and other critics have argued that an internally managed Sabana Reit would more closely align the interests of the Reit with its investors and prevent serious conflicts of interest. They point to, among other grievances, the manager’s attempt in 2020 to push through a merger with ESR-Reit (now ESR-Logos Reit) on “lowball” terms for Sabana Reit’s unit holders.

The manager had countered that internalising the management function is an uncertain and potentially expensive process that could destroy value for unit holders.

Sabana Reit may also end up in breach of its loan covenants, it said.

One of the benefits of an external Reit manager is its links with the sponsor. This gives the Reit access to a potential property pipeline where it is able to acquire assets from the sponsor.

Hong Kong-based ESR said in a statement on Monday afternoon that it was disappointed with the outcome.

It said: “While the current manager will continue to act as the interim manager, unit holders will have to endure a period of uncertainty about how Sabana Reit will be managed in future, and this will create pressure on the value of Sabana Reit and may call into question its long-term future.”

ESR said it “expects the trustee to quickly appoint appropriate advisers and come up with a comprehensive plan and next steps to safeguard the interests of all unit holders, setting out the timelines and cost estimates for each step in order to minimise the period of uncertainty and any adverse risks in the process of implementing internalisation”.

All expenses incurred in this process will be borne by the Reit.

Mr David Gerald, chief executive of the Securities Investors Association (Singapore), or Sias, said: “The unit holders have spoken and am sure they have made an informed decision. The question is, what’s next? Can the next step, the amendment to the trust deed, be carried through with a 75 per cent vote? Sias is neutral on the options.”

The EGM was held at New Tech Park in Lorong Chuan, a flagship Sabana Reit property, and lasted for just over an hour.

Employees of the Reit manager appeared shocked following the unexpected outcome of the meeting, but Quarz invited them to stay on and work for the new internal manager to build up the business together.

With the outgoing manager – Sabana Real Estate Investment Management (SREIM) – expected to continue with its duties, the next step is for an internalised management structure that does not currently exist to be identified, established and then approved by unit holders.

Earlier, the Reit’s trustee had noted in a July 21 statement that this process could take at least 12 months and involve at least two more EGMs.

SREIM had also earlier warned that it cannot guarantee that it can retain its staff, while at least one executive has already resigned.

Trading in Sabana Reit units was halted on Monday. The units had closed unchanged at 40.5 cents last Friday.