In a press release on Nov 20, the board of Sabana REIT’s manager reiterated that the proposed merger between ESR-REIT and Sabana REIT is the only offer that is currently on the table.With an extraordinary general meeting (EGM) due in two weeks’ time, it noted that the merger process has entered a critical stage. Some unitholders have already voted and others are about to do so. “This is no longer an open season where parties can issue unsubstantiated statements and proposals that are not workable. Words have consequences,” the Board warned.

The Board added that activist fund managers are within their rights to oppose the merger and to criticise the Sabana Manager and the Board, but in the interest of unitholders, they should substantiate their claims or provide more details so that the management team and unitholders can carry out a serious analysis of their claims and proposals. 

Both Quarz Capital and Black Crane have written open letters opposing the merger, including making known their intention to requisition an EGM to vote for the manager’s removal and for an internalisation resolution. Unlike the trust scheme proposed for the merger by Sabana REIT’s manager where its sponsor and major unitholders cannot vote, all unitholders can vote for a resolution tabling the removal of the manager. ESR Cayman holds a shade under 21%, Tong Jinquan holds 4.72%, and the likes of UBS, Blackrock and Vanguard hold 5%, 4.98% and 2.72% respectively. Quarz Capital and Black Crane together hold 11%.

See: Chance for a new beginning for Sabana REIT on Dec 4

The Board pointed out that any move to internalise the REIT manager would require consent from banks so that Sabana REIT does not risk defaulting on its existing obligations.“The two fund managers have not explained how the proposal will be financed nor disclosed the identity of the financial backers that they claimed have ‘expressed serious interest in financing the Sabana portfolio’,” the Board said. 

On the purported $2 million cost savings from internalisation that could potentially raise DPU by 7.5%, the Board wants to know how these numbers were computed, noting that such a move would have to factor in the cost of acquiring the REIT manager and its full operating costs, including the entire staffing cost (directors, management, staff) and the rental of office premises, which are currently borne by the REIT manager out of the management fees paid to it.

The Board also questioned the fund managers’ estimate of Sabana REIT’s 2021 standalone DPU at more than 20% above the 2020 level. The Board wants to know how they arrived at that growth projection and what the bases and assumptions were. In addition, the fund managers have projected annual net rental and distribution income for the retail component of 151 Lorong Chuan of $3.7 million and $3.1 million respectively, but again did not explain their bases and assumptions.

With all these questions from the Board, minority unitholders and retail investors, it is perhaps time for Quarz Capital and Black Crane to make their case to these parties in a live webinar presentation with a question and answer session.