In recent weeks, Quarz Capital has been issuing videos and open letters trying to get unitholders to vote against three resolutions, the general mandate, a distribution reinvestment programme (DRP), and Charlie Chan Wai Kheong as an independent director. All three resolutions are ordinary resolutions which means they need 50% plus 1 to pass. The AGM is on Apr 26, at 10 am.
On April 14, Sabana REIT and the Securities Investors Association Singapore (SIAS) will be holding a virtual dialogue session with Sabana REIT’s unitholders at 4pm.
Pro-unitholders’ interests for the longest time
Chan is a well known REIT investor, and is particularly held in high regard by Sabana REIT’s minority unitholders. Chan had acquired a modest stake in Sabana REIT when it announced a dilutive rights issue in 2016. However, he felt that the three acquisitions that were proposed using the proceeds from the rights issues were not in the interests of unitholders as they had master leases that artificially boosted valuation while the underlying rents and occupancies of the properties were lower.
During a contentious EGM requisitioned by a bunch of unitholders in 2017, Chan questioned the valuers on the manner in which they had valued the proposed acqusitions by Sabana REIT’s then manager and sponsor. At the time, Sabana REIT’s sponsor was Vibrant Group. Subsquently, the acquisitions were not completed. Following a strategic review, Vibrant Group divested its stake in the manager to ESR Cayman. The latter also holds around a 21% stake in Sabana REIT.
“I’ve been pro-unitholders interests for the longest time. I invested in more than 70% of all Singapore listed REITs,” Chan says in an interview.
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Chan was appointed director of Sabana REIT’s manager on June 2, 2021. On June 28, Quarz requisitioned an EGM to put Chan’s appointment as an independent director to independent unitholders’ vote in order to remove him, and to appoint Jan Moermann, the CIO of Quarz Capital as director. Moermann, as CIO of Quarz, would not be independent, according to the June 28 announcement filed on SGX.
The SGX announcement states: the requisitionists also alleged the potential lack of independence of the current board of directors and to improve this lack of independence of the current board of directors, they are now proposing to have their senior executives, Jan Frederic Moermann, the CEO and CIO of Quarz and Peter Kennan, the CEO and CIO of Black Crane appointed to the board of the Manager. The Manager would point out that this is somewhat contradictory to their stated concern over the lack of independence of the Board.
Moermann is proposed to be a non-independent director (as he is an employee of Quarz, a substantial unitholder of Sabana REIT) while Kennan is to be appointed as an independent director. One of the clear categories in which a person is regarded to be non-independent under the Securities and Futures (Licensing And Conduct Of Business) Regulations and the CG Code is where he is an employee of a substantial unitholder of a REIT or is accustomed or under an obligation, whether formal or informal, to act in accordance with the directions, instructions or wishes of the substantial unitholder.
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By putting forward these two individuals who are each CEO and CIO of each requisitionist, one of whom is also a substantial unitholder, this will in fact dilute the overall independence of the board of directors of the Manager, says the SGX announcement.
In the same SGX announcement in June last year, the CEO of Sabana REIT’s manager, Donald Han had explained in an announcement that Chan’s appointment was recommended by Quarz.
So, what happened?
“As a unitholder of Sabana REIT, I voted against the merger with ESR-REIT as I felt the terms were not sufficiently in favour of Sabana REIT,” Chan says.
“Havard reached out to me in early 2021 and discussed with me about serving on the Board,” Chan continues, referring to Havard Chi, head of research and director at Quarz Capital.
Market watchers say, obviously, Chan’s vote against Sabana REIT’s merger with ESR-REIT probably made Chi think he and Chan were kindred spirits. Market watchers, including some of Sabana REIT’s minority unitholders, also reckon that Chi’s current objection to Chan as a director is likely due to Chan acting very much independently of Quarz Capital, and in the interests of unitholders. Notably, the interests of minority unitholders are not necessarily aligned with those Quarz Capital.
"The Board and CEO did not know Charlie personally when Quarz recommended his name to us. The Board carefully considered, and then accepted, Quarz's recommendation as a good faith collaborative gesture. We have since found Charlie to be independently-minded yet professional and reasonable to work with," says Tan Cheong Hin, chairman of Sabana REIT’s manager.
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Chi and Quarz Capital claim that their objection to Chan being on the board is because Chan divested a stake in what was then Cambridge Industrial Trust to ESR Cayman at a significant premium to the REIT’s then market price. This took place in 2016 and 2017. In addition, Chi objects to Chan being a unitholder of AIMS APAC REIT. Interestingly, Quarz also has a minuscule stake in AIMS APAC REIT.
“Since being a board member here I haven’t bought anything in AIMS APAC REIT. I subscribed to the DRP and my holdings in AIMS are for public record and any increase is due to DRP,” Chan says. He also opted for DRP at Sabana REIT.
It has come to light that Chi had recommended a couple of other names as directors to Sabana REIT’s manager and its board for consideration. Whether it is fair for Quarz to have two representatives including Chan compared to none by ESR which owns approximately 21% of Sabana REIT, is open to debate.
Since both the general mandate and the DRP were voted through in 2021, they are likely to be voted through again this year. As for the resolution on Chan’s directorship, chairman Tan and CEO Han are hoping that is voted through as well.
“We want to reach out to our many unitholders to encourage them to come out and vote. This AGM is very important for them to give us a clear indication that unitholders are supportive of our Refreshed Strategy and want us to take it forward to growth trajectory in 2022 and beyond,” CEO Han says. The manager will be giving unitholders a $20 voucher for completed proxy forms, to be spent at NTP+. The deadline for completed proxy forms to be returned is Apr 24, 10am.
“We are moving into an expansionary phase in a challenging uncertain macro-economic environment and Charlie possesses the necessary experience as a seasoned investor and unitholder, and can help to advise the management," says Han.
"To grow, we need financial flexibility and will evaluate various funding options. Hence the general mandate and DRP scheme can provide the necessary levers and flexibility to strengthen the Reit. Since at AGM 2018 when we won back the general mandate, we had been disciplined and had not activated any share issuance other than for DRP purposes amongst others,” he adds.
Han points out that in FY2021, Sabana REIT’s revenue, net property income, distributable income and DPU grew by double digits. Revenue rose 14.2% y-o-y to $81.9 million; NPI rose 16.4% to $52 million and DPU was up 10.5% y-o-y to 3.05 cents. Sabana REIT’s unit price is up 5.7% since the start of the year.
This year, AEIs being planned include on 1 Tuas Ave 4 which has plot ratio of 2.5x compared to its built up plot ratio of 1.6x; plans are afoot to rejuvenate older buildings; and the manager will start to look at accretive acquisitions.
