The unitholders of Sabana REIT have spoken.

At its extraordinary general meeting (EGM) on Aug 7, some 691 million votes were cast, of which unitholders holding 57.5% of them voted to remove the REIT’s current manager, Sabana Real Estate Investment Management (SREIM).

Unitholders holding 55.6% of the 691 million votes cast also voted in favour of the REIT’s trustee, HSBC Institutional Trust, to effect the internalisation of the REIT management function. This will be done by incorporating a subsidiary wholly-owned by the trustee to act as the REIT’s manager. 

The EGM concludes two months of open letters fired from opposing sides — Hong Kong-listed ESR Group, which is the sponsor of Sabana REIT, and activist investor, Quarz Capital Asia (Singapore).

Quarz had requested the manager to convene an EGM on June 7 to effect the internalisation of the REIT manager. Both parties had penned open letters in a bid to convince unitholders of their respective arguments.

One of the arguments brought forward by Quarz is the potential saving of over $40 million of fees paid to the external manager over the next 10 years, a point that ESR Group has since refuted.

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Strangely, a spokesperson for Quarz asked the staff of SREIM to stay on, promising to reward them with improved remuneration.

The spokesperson also told unitholders that it costs $3 million to $5 million to set up a new manager and that the banks are unlikely to trigger a change of control covenants as the loans are collateralised. Sabana REIT’s portfolio is 100% unsecured. Collateralising the portfolio may require the lead lenders to cherry-pick the best assets. 

During the EGM, Donald Han, CEO of SREIM had indicated that the land lease is around 27 years. A unitholder says that if Sabana REIT is liquidated, he is looking at getting around 83 cents to the dollar. 

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Sabana REIT’s largest asset is New Tech Park. During Han’s tenure, he added NTP+, a retail mall to New Tech Park. 

ESR Group in response, says it is "disappointed" with the outcome of the meeting, and as such, the "Trustee is being asked to consider a path towards an unprecedented internalisation."

Volare, another key shareholder, reportedly was one of those who voted in favour of both resolutions. 

"It is important for unitholders to understand that after setting aside the stakes owned by ESR, Quarz and Volare, the majority of other unitholders, excluding the 3 largest unitholders, voted against the resolutions," says ESR Group. 

"Whilst the current manager will continue to act as the interim manager, unitholders 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," says ESR.

ESR expects the Trustee to "quickly" appoint appropriate advisors and come up with a comprehensive plan and next steps to safeguard the interests of all unitholders, as well as to set 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. 

"Unitholders should bear in mind that all expenses to be incurred by the Trustee to formulate and implement the plan will be borne by Sabana REIT,” adds ESR.

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In a letter dated Aug 8, HSBC Institutional Trust, as the REIT's trustee, said that it will now "proceed with identifying and appointing professional advisers to advise it on the implementation of the resolutions". This includes the holding of further EGMs to seek the REIT's unitholders' approval on, among other things, "the necessary and specific amendments to the trust deed by way of extraordinary resolution(s)". 

"During the transition period, the Trustee will expect the manager to continue to serve as interim manager until a replacement internal manager is appointed," adds the trustee.

Units in Sabana REIT last closed at 40.5 cents. The REIT had called for a trading halt on the morning of Aug 7.

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