Yahoo Finance Unitholders mull exit strategy as costs rise for internalisation of Sabana REIT
Unitholders mull the best way to solve the internalisation conundrum for Sabana REIT as costs escalate
On March 8, unitholders of Sabana Industrial REIT were understandably full of angst over the $3.2 million spent on internalisation from August 2023 to Dec 31, 2023, as one after another, unitholders got up to question HSBC Institutional Trust Services (the Trustee) on why it had spent the monies. Takeaways from the EGM can be viewed here.
More than that, seven months on from an August 7, 2023 resolution to remove the external manager, unitholders appear to feel they are no closer to the final destination of an internalised manager in an S-REIT.
Initially unitholders were led to view that internalisation would be a four to five months process, with unitholders spending around $5 million in total.
The main requisitionist of the March 8 EGM, Quarz Capital Asia, requisitioned the EGM on Aug 7, 2023 to remove the manager and to direct the trustee set up an internalised management structure.
Trustee's warnings were not heeded
Increasingly clear from correspondence between Quarz and the Trustee, and in the 10 resolutions for the additional EGM on March 8, is that Quarz is looking for a way around holding an EGM that requires an extraodinary resolution for a major amendment to the Trust Deed to be voted on.
On July 15 and July 21, 2023, the Trustee had stated to all unitholders that “Unitholders should be aware that a considerable amount of time and cost will be required to internalise the REIT management function”, adding that the process could take 12 months or more.
In those statements, the Trustee also added that “the fees, costs and expenses of professional advisers will be reimbursed out of the assets of Sabana REIT in accordance with the terms of the Trust Deed”. ·
More than that, on July 15 and July 21 last year, the Trustee had said “In addition, the Trustee currently expects to have to hold two or more further extraordinary general meetings, if Resolution 2 is passed, to approve the necessary and specific amendments to the Trust Deed by way of extraordinary resolution(s) of the Unitholders”.
The Court
Prior to the August 7, 2023 EGM, ESR Group had gone to Court to seek clarity on how the Aug 7 EGM should proceed and how the resolutions are to be read, as well as to prevent a prolonged period of uncertainty. On July 19, the Court provided a clear direction for these. According to statements on SGX dated July 25 by ESR, resolution 2 as presented by Quarz is merely a direction to the Trustee to explore the option of internalisation. The resolution as it stands is not for the immediate implementation of internalisation.
The July 25 statement by ESR Group says, “the Court has stated that if resolution 2 is passed, and if amendments to the Trust Deed are required to effect internalisation, the Trust Deed mandates an extraordinary resolution to sanction the proposed amendments in the event that the Trustee does not give a written certification that the proposed amendments do not materially prejudice the interests of Unitholders”.
Was Quarz aware of the Court’s ruling?
Quarz’s view is for the Trustee to certify the Trust Deed change. “As unitholders passed the internalisation vote in Aug 2023, the Trustee should use the path with the least hurdle to implement internalisation successfully. However, instead of doing things with the least hurdle, the Trustee insists on making amendments to the Trust Deed for internalisation,” Quarz has said.
Waivers were procedural
During the EGM on March 8, a representative from Quarz Capital Asia, who was the main requisitionist for the EGM and its 10 resolutions, of which 8 were voted through, asked about the waivers that Sabana REIT’s Trustee had received from the Monetary Authority of Singapore. These were duly announced on SGX after the close of trading on March 8.
The waivers given by MAS appeared to be procedural. These include allowing the shares of the internal manager to be held by the Trustee for the benefit of all unitholders. REITs are not allowed to own shares in a manager. A waiver was granted so long as the shares of the internal manager are held by the Trustee on trust for the benefit of all unitholders.
One of the top 20 unitholders of Sabana REIT, (ESR is the largest, followed by Volare, Quarz and Tong Jinquan) who is clearly upset because his DPU has been cut, says: “the requisitionists failed to think through the process. They introduced the resolution to direct the Trustee to kick-start the internalisation process. However, as has been announced by the Trustee, there needs to be amendments to the Trust Deed. I’ve no idea why the requisisionists did not put this up for a vote during the Aug 7 EGM.”
What happens next?
Order 32 comes next.
On Jan 9, the Trustee said “having consulted its legal advisers, Rajah & Tann, the Trustee takes the view that it would not be appropriate for the Trustee to provide a certification in relation to the Proposed Trust Deed Amendments”.
The Trustee goes on to state that “the Proposed Trust Deed Amendments should be subject to Unitholders’ due consideration and approval by way of an extraordinary resolution at an EGM to be convened in accordance with the Trust Deed and the CIS Code”.
In Order 32, the Trustee has requested to seek six prayers from the Court. These are i) a declaration that amendments to the Trust Deed are required to implement the resolutions approved at the EGM of the Unitholders held on 7 August 2023; ii) a declaration that the Trustee’s power under Clause 28.2.1 of the Trust Deed is in the nature of discretion rather than obligation; iii) a declaration that the Trustee is at liberty to convene an EGM; iv) liberty to apply to Court for further directions in the event an EGM is convened; v) costs for the Order 32 Application to be provided for; and vi) such further or other relief as the Court deems fit.
The Trustee’s July 15 and July 23 letters to unitholders gives an indication of what could materialise if the internalisation process hits a roadblock. “In the event the Resolution(s) are passed and cannot be implemented at all or within a reasonable timeframe (for example, because the resolutions put to Unitholders at the Further EGM(s) do not pass or the necessary regulatory approvals are unable to be obtained) or the operations or management of Sabana REIT are materially disrupted during the transition period (for example, because financing does not remain in place), the Trustee will, together with its professional advisers, assess all options in the best interests of Unitholders, including the options of an orderly winding up of Sabana REIT and/or applying for court orders to take such actions as required or necessary in relation to Sabana REIT. The fees, costs and expenses of such actions will be reimbursed out of the assets of Sabana REIT in accordance with the terms of the Trust Deed.”
There we have it. The light at the end of the tunnel is for assets of the REIT to be divested gradually, and monies returned to the lenders and unitholders.
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