Aug 7, 2023 – In an unprecedented move, Sabana Industrial Real Estate Investment Trust’s unit holders voted in an extraordinary meeting on August 7 in favour of removing its existing external manager and replacing it with an internal manager.
Up to now, all 42 Reits and trusts listed on the Singapore Exchange are managed externally, which means a third party earns a fee in exchange for carrying out its managerial duties. An internally managed REIT, on the other hand, hires staff to perform those functions. Sabana REIT’s manager is indirectly owned by ESR Group, which also owns the manager of ESR-LOGOS REIT.
A breakdown of the valid votes cast showed that 57.46% voted in favour of removing the manager in a resolution proposed by activist shareholder Quarz Capital. A key unit holder, Swiss-based conglomerate Volare Group, is believed to have voted in favour of the resolutions. It owns 16.01% of Sabana, while Quarz holds 14.01%, according to the Straits Times.
Quarz’s concerns included the fact that Sabana REIT has increasingly lost value. Among its argument is the fact that the current structure, in which ESR owns two REIT managers that primarily invest in industrial assets, raises questions about which REIT will the manager prioritise when there is a conflict of interest.
There are pros and cons to internally versus externally managed structure as EY detailed in this report. Crucially is the manager’s alignment of interest with the REIT unitholders.
Following the vote, DBS downgraded Sabana REIT to fully valued with a target price of S$0.30.
“Given the uncertainties surrounding, we are downgrading our recommendation to fully valued with a revised target price of S$0.30 where ongoing operational and financial uncertainties in a challenging operational outlook could be a key overhang on the stock. Further EGMs and administrative procedures will have to be convened in the coming months, and these will lead to additional costs for the REIT that we believe will result in further pressure on returns.” DBS said in a report.