Sabana REIT's property near Serangoon, New Tech Park. (Photo: REITsWeek)Sabana REIT's flag property near Serangoon, New Tech Park. (Photo: REITsWeek)

The board of Sabana REIT’s manager has hit back at calls for it to internalise, describing proposals by Quarz Capital and Black Crane Capital as “unrealistic and not based on facts”.

Quarz and Black Crane are Singapore-based institutional investors, each with substantial stakes in Sabana REIT.

On 11 November, the firms issued a call for the manager of Sabana REIT to be internalised, should the proposed merger with ESR-REIT fall through.

Related: Amid merger row, Sabana REIT now faces call for manager internalisation

An internal REIT manager would be free of conflicts to explore other potential transactions, including mergers with other REITs that do not impose a huge discount to Sabana REIT’s NAV, said Quarz and Black Crane in a joint statement.

The implied discount to Sabana REIT’s NAV in the merger deal with ESR-REIT has been a main point of contention for Quarz and Black Crane.

Related: Institutional investors to reject proposed merger between ESR-REIT, Sabana REIT

This is especially so, given that Sabana REIT still presents an attractive proposition for investors looking for exposure into Singapore’s industrial market, they posit.

“Sabana’s portfolio provides institutional investors such as private equity funds, real estate managers and family offices an expedited way to have a sizable footprint in the attractive Singapore industrial property sector”, said Peter Kennan, founder of Black Crane in an earlier statement.

“Given the high structural growth in e-commerce, industrial and logistic assets such as Sabana’s are in high demand”, he added.

Sole offer

But in spite of these connotations, Sabana’s board warned on 20 November that the proposed merger between ESR-REIT and Sabana REIT is the only offer that is currently on the table.

And given that the extraordinary general meeting (EGM) to approve the merger would be held in two weeks’ time on 4 December, the board called on both Quarz and Black Crane to substantiate their claims in support for the internalisation.

“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 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”, it added.

Sabana’s board also pointed out that any move to internalise the REIT manager would require consent from banks to ensure that Sabana REIT does not risk defaulting on its existing obligations.

The board has also cast doubts over the purported SGD2 million cost savings from an internalisation that could potentially raise DPU by 7.5%, noting that such a move would have to factor in the cost of acquiring the REIT manager and its full operating costs.

Uncertain path

Sabana's board also opine that should the merger fall through, Sabana REIT may find itself without the backing of a larger sponsor, which would create more uncertainties.

“... the two fund managers are proposing a very different and highly uncertain path for Sabana REIT as a standalone REIT without a sponsor vis-a-vis merger to create a larger REIT with a strong sponsor”, a statement from Sabana’s board warned further.

And under the take-over code, if the merger is not approved by unitholders on 4 December 2020, the ESR-REIT’s manager and its concert parties will be restricted from making another offer for Sabana REIT within 12 months from the date the merger is withdrawn or lapses.

As such, the board calls upon both Quarz and Black Crane to urgently clarify their proposals to allow Sabana REIT unitholders to make an informed decision.

“While Quarz and Black Crane are not bound by strict rules of engagement set by regulators like parties to the merger are, their statements aim to influence unitholders,” the board said.

“They owe it to unitholders to act responsibly and justify their statements”, it added.

Sabana REIT was last done on the SGX at SGD0.35, which implies a distribution yield of 2.7% excluding withheld distributable income, according to data compiled on the Singapore REITs table.

By Ridzwan Rahmat

Ridzwan has been analysing REITs and business trusts since 2008, and personally manages a portfolio comprising mainly of SGX-listed REITs. He founded REITsWeek in 2013.