Galaxy JREIT Urges Sakura Sogo Unitholders To Vote Against Star Asia Merger in March 30 Meeting (Update)
Governance and valuation issues are main concerns.
By Bianca Cuaresma
March 9, 2020 — Sakura Sogo REIT is set to convene a unitholders’ meeting on March 30, in an effort to encourage opposition against Star Asia Group’s impending takeover of Sakura Sogo REIT. Galaxy JREIT Pty Limited, Sakura Sogo REIT’s sponsor, cited governance and valuation issues in Star Asia’s proposal.
In a letter addressed to all the unitholders of Sakura Sogo REIT dated March 4, Galaxy J-REIT urged unitholders to “oppose Toru Sugihara and any proposal from him”, “vote against any proposal to reappoint Toru Sugihara as Executive Director”, and “oppose Star Asia Group’s proposed merger with Sakura Sogo REIT.”
Toru Sugihara is the former Representative Director of Lion Partners, an entity controlled by Star Asia Group. He was appointed as the new Executive Director of Sakura Sogo in a meeting on August 30, 2019.
Votes not counted
However, there were alleged governance issues surrounding the August 30, 2019 meeting. “Lion Partners, who convened the unitholders’ meeting, did not include the proposals from Galaxy which Sakura Sogo REIT had repeatedly requested be added to the convocation notice and voting cards,” according to the statement. At the meeting, 25,073 voting rights exercised by 2,562 unitholder proxies opposing the Lion Partners’ proposals were not counted, and 40.4% of all unitholders who exercised the voting rights were not reflected in the outcome, it further said.
“The ultimate results of the meeting do not reflect the majority view expressed by Sakura Sogo REIT unitholders,” said Galaxy. The actions highlighted the fact that “Toru Sugihara and Star Asia Group cannot be trusted, and they have consistently and blatantly disregarded other unitholders rights.”
Galaxy JREIT holds 8,700 units of Sakura Sogo REIT. Should unitholders heed this call and vote in favour of Galaxy’s motion, Galaxy prepared a comprehensive proposal for Sakura Sogo REIT through a 10-point programme:
- Approval of Galaxy’s proposals at the unitholder meeting on March 30
- Sale of Sakura Sogo REIT portfolio in an open bid process with a target sale price of independent appraisal (¥62.7b) equating to approximately ¥101,000 per unit
- Approval of changes to the Articles of Incorporation to allow sale of the portfolio in two tranches
- Tranche 1 of the asset sales to occur before the end of June 30
- Distribution paid for June 30 will include return of gain on sale from tranche 1 asset sales
- Sale of tranche 2 of the asset sales on September 30
- Unitholder meeting to dissolve Sakura REIT and return all cash
- Launch of Sakura REIT buyback units to allow unitholders to cash out their investment
- Final distribution paid to Sakura REIT unitholders
- Wind up of Sakura REIT before December 31, 2020.
Valuation does not reflect fair value
“Our proposal will deliver Sakura unitholders fair value for their investment, unlike the proposed merger with Star Asia that would result in a sale of Sakura’s portfolio to Star Asia at a discount and a reduction in future distributions for Sakura unitholders. Galaxy’s proposal provides a more attractive alternative and puts power and control back into the hands of the owners of Sakura – its unitholders” said Neil Werrett, Managing Director of Galaxy. Galaxy’s proposal, if approved by unitholders would result in Sakura unitholders receiving ¥101,000 (US$965) per unit. This represents a 17.6% premium to the closing price of Sakura REIT units on March 3, 2020, being the day following the Star Asia’s merger terms being announced, according to the statement.
“Sakura unitholders should be alarmed at the prospect of a possible merger with Star Asia. Sakura’s portfolio is superior due to its central Tokyo office weighting and growth in net asset value per unit has been double that of Star Asia over the past 3 years. The only way to ensure unitholders receive fair value for the investment is to support our proposals at the unitholder meeting on March 30, 2020 and approve a portfolio sale,” he added.
Amid Japan’s typically amicable REIT culture, Star Asia Group announced a takeover proposal for Sakura Sogo on May 10, 2019. The unexpected move was a first in Japan’s REIT industry.
Since then, the two JREITs have been in a battle over merger provisions and developments.
REITAsiaPac tracked the events of this controversial bid. Here is our timeline on what has happened since the publication of the hostile takeover proposal.