SGX piles more pressure on Sabana Reit manager

It's not very often that Singapore Exchange (SGX) queries a firm over the resignation of a non-executive director, but that the frontline regulator deemed it fit to do exactly that amid a unitholder rebellion against the manager of Sabana Shari'ah Compliant Industrial Real Estate Investment Trust (Sabana Reit), a saga that it is evidently keeping close tabs on, may be telling.

On Monday, Sabana Reit's manager, Sabana Real Estate Investment Management, announced the resignation of Ng Shin Ein from the board effective May 23.

The contents of the resignation letter piqued great interest as Ms Ng cited "certain internal dynamics" that have hampered her ability to contribute to the Reit manager, compounded further by unhappy unitholders' action to kick out the manager.

Ms Ng, who has been with the board for nearly seven years, had notified the firm of her resignation earlier in January but withdrew that "out of a sense of duty" until a basic framework and process was in place; now that they seem in place, she has reinstated her decision to step down.

Over two days - the day of the announcement and a day later - SGX echoed the very sentiments in the minds of market observers and queried the firm on what Ms Ng had meant by these "internal dynamics" and if they impacted the Reit and its unitholders.

The manager's response did little to assuage the already-anxious unitholders. It referred to those "dynamics" as the difficulties facing the Reit in accessing a good pipeline of properties "given the shareholding structure of the Reit manager".

The Reit manager added that it understands from Ms Ng that while "strategic shareholders with substantial quality assets would usually want to take over majority interest in the REIT Manager, it was beyond the board's control to compel any shareholder of the REIT Manager to divest its stake".

The statement barely evokes inspiration among unitholders exasperated with the Reit manager's underperformance, who are also keenly awaiting a date for a special meeting they have requisitioned to, among other things, force the manager out.

This more so as the main thrust of its "strategic review" announced in early February, for which it has roped in Morgan Stanley Asia (Singapore) as financial adviser, is to review the manager's current shareholding structure and management. When queried further by SGX, the manager revealed on Wednesday night that the plan could also involve a potential sale of all units or assets of the Reit and a sale of the manager.

The Reit manager is 51.0 per cent indirectly owned by Singapore-listed Vibrant Group, which is Sabana Reit's largest unitholder with 12 per cent holdings and largest tenant.

One particular deal that irks the vocal unitholders is a plan by the Reit manager to acquire an industrial building in Changi South valued at S$23 million from Vibrant under a sale and leaseback plan, which is perceivedly exorbitant considering the prevailing weakness in the industrial space.

That Vibrant had coughed up half that price or S$10.9 million to pick up that same asset six years ago has further cemented the notion that the asset is overpriced, never mind that the manager has explained the past purchase price tag as an "irrelevant" comparison.

Interestingly, this wouldn't be the first time that Vibrant, which was known as Freight Links Express Holdings up until late 2013, would find itself embroiled in a controversy and that too one involving a high price.

The diversified logistics firm that is helmed and majority owned by Eric Khua Kian Keong, and is the sponsor of Sabana Reit - the world's first and largest Syariah-compliant listed industrial Reit - raised eyebrows back in 2013 when it revealed that it had provided a loan at a high interest rate to City Harvest Church.

The five-year S$45 million loan at reportedly 13 per cent interest rate was then secured by City Harvest Church with its stake in Suntec Singapore Convention & Exhibition Centre as collateral when donations waned amid the church's high-profile court case.

anitag@sph.com.sg

This article was first published on March 3, 2017.
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