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Sabana REIT’s unitholder explains why Trust Deed changes need EGM

Goola Warden
Goola Warden • 4 min read
Sabana REIT’s unitholder explains why Trust Deed changes need EGM
Sabana unitholder asks requisionists to respect trust deed, legal process in the name of good corporate governance
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In another shot across the bow of Sabana Industrial REIT’s contentious internalisation journey, unitholder Chan Wai Kheong, better known as Charlie Chan, has written to Sabana REIT’s manager in support of HSBC Institutional Trust’s (the Trustee).

For those that were present at the REIT’s March 8 EGM, the Trustee bore the brunt of unitholders’ somewhat contentious questions and comments. The EGM was requisitioned mainly by Quarz Capital Asia. On March 25, Quarz requisitioned a third EGM.  

In his letter, which was co-signed and supported by five more unitholders, Chan pointed out that the Trust Deed and its provisions should reign supreme and amended only with a supermajority. He likens the Trust Deed to a country’s constitution. The government can change with 51% but the constitution can only be amended by a two-thirds majority in parliament.

“I look to the Trust Deed to set out the structure of our investment vehicle and to regulate who can make investments for the REIT and what the REIT can invest in. The structure and setup of the external manager are all clearly spelt out,” Chan writes in his letter. "The Sabana Trustee is seeking to act properly in accordance with good corporate governance in wanting to put forward trust deed amendments for unitholders to consider and approve but a few unitholders are trying to prevent the democratic process from running its course," he says, adding that the Trustee is seeking guidance from the Court and the Court process should be respected. 

Chan reminds us that back in July last year, the Trustee had already warned unitholders that it would have to hold two or more EGMs to approve specific and necessary amendments to the Trust Deed by way of extraordinary resolution.

On April 9, the Trustee spelt out these amendments in Appendix C to its announcement to unitholders.  These include the treatment of the New Internalised Manager as an Authorised Investment of the REIT; restriction of holding 20% or more of the internalised REIT; disclosure of interest; Lending, Borrowing and Raising Money for the Manager; and establishment of, acquisition of and/or investments into subsidiaries of the Manager.

See also: Gordon and Celine Tang to acquire manager of ARA US Hospitality Trust

The amendments to the Trust Deed are key changes. The treatment of the New Internalised Manager as an authorised investment of the REIT is one of the main changes and key to internalisation, or else Quarz’s raison d’être for internalisation falls flat. The Trust Deed does not authorise Sabana REIT to hold unlisted shares in a company providing internal REIT management functions and to invest in its own manager. If this is not amended, there is a risk that Sabana REIT is operating in breach of its Trust Deed which could result in action taken by either unitholders or other stakeholders, the Trustee cautions.

Additionally, if Clause 16.4 of the Trust Deed is not amended, the New Internalised Manager would not be permitted to invest trust monies into securities of, or lend trust monies to, itself or its subsidiaries such as the Property Manager.

“The Trust Deed should give Sabana Industrial REIT the flexibility, if it chooses to replicate the Existing Property Management Structure, to permit the New Internalised Manager to hold and provide funding from Sabana Industrial REIT to a property manager subsidiary,” the Trustee says.

See also: Mapletree Logistics Trust announces new CEO of the manager, seen by DBS to 'bring continuity'

Moreover, upon internalisation, unitholders will be regarded as having an interest in the shares of the New Internalised Manager in proportion to their respective unitholding in Sabana REIT.

“Accordingly, a unitholder will have to meet and maintain certain qualifications prescribed by the MAS if it acquires, holds or controls 20% or more of the units of Sabana REIT, such as being a fit and proper person,” the Trustee says. If this Trust Deed amendment is not adopted, the New Internalised Manager will not have the ability to "clawback" units that were acquired above the permitted limit without MAS approval so as to resolve the relevant breaches of the Regulatory Requirements under the Securities & Futures Act and its capital markets services licence. 

Coincidentally, Volare, who has voted with Quarz in the Quarz requisitioned EGMs, raised its stake to 17.01% as announced on SGXnet on April 9.

Also on April 9, the Trustee had stated that piecemeal proposals to avoid an EGM, which will allow all Unitholders to properly consider the internalisation including Trust Deed amendments, do not serve the interests of Sabana REIT and its unitholders.

Analysts have said they agree with Chan when he says in his letter: “I feel it is time for the requisitionists to realise they cannot be chipping away at the proper governance of the REIT and passing numerous ordinary resolutions to effect the change to an internal model.”

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