Quarz, Black Crane plan EGM requisition to approve internalisation of Sabana Reit manager

QUARZ Capital and Black Crane Capital, in a joint statement released on Wednesday and seen by The Business Times, said they intend to requisition an extraordinary general meeting (EGM) for the internalisation of the manager of Shari'ah Compliant Industrial Real Estate Investment Trust (Sabana Reit).

The fund managers also said this should be done after the proposed merger of Sabana Reit with ESR-Reit falls through, reiterating their call for Sabana unitholders to vote against it.

They noted that with an internal manager, the distribution per unit (DPU) "immediately increases" by some 7.5 per cent through elimination of the management fees paid to ESR Cayman, which has a controlling ownership of Sabana Reit's manager.

Additionally, the internalisation "aligns the interests of all unitholders by removing the ESR conflicts and thereby enabling Sabana to realise its full value", the fund managers added.

The primary goal of the internal Reit manager will be to close the substantial NAV (net asset value) discount of Sabana units by improving Sabana Reit's performance and/or via sale of all or part of the Sabana portfolio and returning surplus capital to unitholders.

The fund managers added that Sabana Reit has the potential to increase its DPU by more than 40 per cent with a dividend yield of 9 per cent and an upside in the unit price "in the coming 12 to 18 months with a focused, aligned, competent and committed management".

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In the statement, Quarz and Black Crane identified "key levers" for Sabana to increase unitholder value and DPU, such as the "timely completion and rent out of the retail component" at its 151 Lorong Chuan asset in the first quarter next year, to generate a distribution income of S$3.2 million per annum, potentially increasing DPU by 0.301 cent.

Portfolio occupancy rate can also be "optimised" from 77 per cent to about 82 per cent to generate S$3 million of additional distributable income, potentially increasing DPU by 0.28 cent.

The fund managers also said the internal Reit manager would be "free of conflicts to explore other potential transactions", such as mergers with other Reits, sale of the Reit or all of the underlying assets for cash or combinations of various strategies. These could potentially result in the closing of the NAV discount.

They added that they have initiated discussions with "several candidates with strong expertise and track record" in the commercial and industrial real estate sectors, both in Singapore and regionally.

Peter Kennan, founder and chief investment officer (CIO) of Black Crane, said that Sabana's portfolio provides institutional investors "an expedited way to have a sizeable footprint in the attractive Singapore industrial property sector".

Quarz and Black Crane said that while Sabana's incumbent manager may claim the removal of the manager "will trigger loan default clauses", discussions are ongoing with "a number of financial institutions and investors who have expressed serious interest in financing the Sabana portfolio".

Jan Moermann, CIO of Quarz, said: "Given the low interest rate environment, this will present an attractive opportunity for Sabana Reit to refinance at a lower interest rate and form new banking relationships."

In the near term, the two fund managers also intend to propose the replacement of the Sabana Reit manager. They will be holding a webinar for all Sabana unitholders at 8.15pm on Nov 25 to share their views on the proposed merger.