Sabana REIT addresses concerns over performance, manager compensation

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The embattled manager of Singapore-listed Sabana REIT, who is currently facing calls by a number of unitholders to step down over accusations of lacklustre performance, has come forward to address issues regarding its conduct.

The responses were given in an exclusive phone interview with REITsWeek, which has been done in addition to a clarification announcement made on 26 January to address local media reports on unitholders’ demands for the change in management.

Among issues that were discussed in the phone interview included Sabana REIT’s recent acquisitions, which some unitholders consider to be ill-conceived given consideration metrics such as purchase price, and lease periods remaining on the properties.

Specifically, REITsWeek raised the SGD20 million (USD14 million) acquisition of 72 Eunos Avenue 7, which is considered by certain quarters to be overpriced, given the property’s remaining lease of about 24 years, and relatively high per-square-foot valuation in comparison to other properties in the Eunos and Ubi industrial areas.

In response to this, Kevin Xayaraj, CEO of the REIT’s manager, pointed to the ten-year sale-and-leaseback arrangement with the vendor of 72 Eunos Avenue 7 as a factor that justifies the property’s acquisition consideration.

“When you have a secure income stream for a longer term, that will mean that there is no vacancy risk, because if you compare to other buildings that are multi-tenanted and are not 100% occupied, that means you don't have enough rentals therefore the value is lower”, said Xayaraj.

“I think the income stream is very important, and in this case what is particularly important in the ten-year income stream”, he added.

Xayaraj also addressed the issue of the REIT’s manager compensation, highlighting that the corporation takes 80% of its management fee in units of Sabana REIT.

“The 80% units we take as a fee adds a very strong signal that the REIT manager’s interest is aligned with all the unitholders”, said Xayaraj.

“I don't think there are many other REIT managers out there that take this sort of high proportion in units”, he said.

The manager’s co-founder also touched upon the issue of establishing an internal management structure, one of the proposals forwarded by unitholders in their demands to remove the REIT’s management.

“The concept of internalisation has been discussed across the industry for many, many years, and nobody has done it”, said Xayaraj, noting that the internal management structure is more prevalent with REITs listed outside Singapore.

“We are prepared to explore this option, and it certainly will take a lot of components to come into place, and I’m quite sure that there are many views and opinions that we have to listen to, and see if they are viable. I would then certainly surface the idea and discuss more at the board level”, said Xayaraj.

The CEO also reiterated that he will be willing to meet demands from unitholders for a meeting, or proposals to table resolutions, as long as these proposals meet regulations requirements, such as minimum quorum, and full disclosure of names and unit holdings.

“These are subject to verification by various parties. Once the unitholder’s identities and their holdings are confirmed, certain resolutions could be proposed, and I’m sure both parties will engage their legal counsel on the next steps to ensure that everything is done according to the relevant regulations”, he added.

Xayaraj also extended an invitation to REITsWeek, for a meeting at the REIT manager’s premises after the Chinese New Year period, during which these issues can be clarified further.

For a further understanding of this issue, read: Sabana REIT faces calls for management change amid questions over performance and Sabana REIT DPU for 4Q 2016 plunges by 32.8%.

Units of Sabana REIT finished the trading day about 4% higher from its previous close on the Singapore Exchange to end at SGD0.385.

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