SINGAPORE, Feb. 21, 2023 /PRNewswire/ — Quarz Capital Management, Ltd today issued an open letter to the management and board of Sabana Industrial REIT, the full text of which is provided below.
QUARZ CAPITAL MANAGEMENT ISSUES OPEN LETTER TO THE MANAGEMENT AND BOARD OF SABANA REIT (SGX: M1GU)
ALL RECIPIENTS ARE ADVISED TO READ
"IMPORTANT DISCLOSURE INFORMATION"
AT THE END OF THE ATTACHED LETTER
DETERIORATION OF SABANA REIT’S OPERATIONS IS HIGHLY CONCERNING AND MAY FURTHER REDUCE DPU
URGES SABANA DIRECTORS NOT TO WASTE UNITHOLDERS’ MONIES BY APPOINTING AN INDEPENDENT FINANCIAL ADVISOR
VISIT AND REGISTER AT WWW.SAVESABANAREIT.COM FOR MORE INFORMATION
Dear Mr. Han and Members of the Board of Sabana REIT Manager,
Sabana Industrial REIT’s (the "Trust", "Sabana REIT", "Sabana" or "SSREIT SP") 2H2022’s performance is highly concerning.
Despite the favorable operating conditions in 2H2022, Sabana’s DPU plunged 7% YoY, sharply underperforming its S-REIT peers which saw flat or increasing DPU YoY.
It is also concerning that the occupancy rate has significantly decreased in several key buildings which command higher rental rates. This may further reduce Sabana REIT’s DPU going forward.
8 Commonwealth Lane and Frontech Centre’s occupancy rates fell sharply from 100% and 94% to 82% and 66% respectively. 10 Changi South St 2 and NTP+ also saw occupancy rates fall to 74 and 77%. 1 Tuas Avenue 4 has now been vacant for more than 6 years (since 2016).
It is highly concerning that an asset has been vacant for 6 years and the building where the REIT manager has its main office in is almost a quarter empty, this despite the scarcity of land in Singapore and the manager’s annual fees of ~S$4.5 million to manage just 18 properties.
The underwhelming financial result is also in sharp contrast to the manager’s often seemingly upbeat comments about its own performance.
As interest rates increase and economic conditions weaken, companies in Singapore are beginning to reduce expenses and floor space, which may result in an additional weakening of Sabana’s DPU and share price going forward.
Despite the REIT manager’s seeming operating failures, the manager seems to be more interested in increasing its own management and acquisitions fees instead of improving DPU and unit price by continuing to reiterate its intention to acquire assets. These potential acquisitions could potentially be funded by rights and placements at discount to market price and can have a significantly negative impact on Sabana REIT’s unit price.
The critical overlapping investment mandate problem due to ESR Group’s ownership of Sabana and ESR Logos REIT managers which can potentially cause severe conflicts of interest and damage minority unitholders’ value, continues to exist even after 2.5 years.
ESR Group ( 1821 HK Equity ) has so far shown zero interest in resolving this issue despite this continuing critical and apparent corporate governance failure. It remains to be seen how ESR’s ‘ESG hungry’ capital partners such as GIC and OMERS can continue to stand by and tolerate ESR Group’s potential ‘double standard’ of committing to ESG while solely causing and not resolving critical corporate governance issues in its own portfolio investments.
In view of the poor results, we urge the directors of Sabana REIT not to unnecessarily and additionally waste unitholders’ monies by appointing an Independent Financial Advisor ("IFA") to assist the independent directors in evaluating a partial offer which is more than 50% above the previous offer (by ESR REIT) which the directors already have unanimously recommended as "Fair and Reasonable".
As specified in Note 4 on Rule 7.1 of the Takeover Code; "there is no requirement for the directors to obtain competent independent advice if a partial offer does not result in the offeror and its concert parties holding 30% or more in the offeree."
The need to hire an IFA is highly questionable as it was just 2 years ago that the REIT manager spent more than ~S$2.1million of unitholder’s capital (>15% of half yearly DPU) with the Directors recommending what we consider a low ball and value destructive merger offer at an implied price of ~S$0.31[1] from its affiliate, ESR Logos REIT ("EREIT SP Equity" or "ESR REIT") as both Fair and Reasonable (1 Sabana unit for 0.94x ESR REIT unit).
Both Tan Cheong Hin and Wong Heng Tew were the directors who have recommended and promoted the implied offer of ~S$0.31 from ESR REIT as both Fair and Reasonable.
To put things into perspective: the Partial Offer Price at S$0.465 is:
- Near the highest price Sabana REIT has traded in the last 5 years
- At a substantial ~50% premium over the merger offer price from ESR Logos REIT which had been actively recommended and promoted by the directors as both fair and reasonable.
- At a premium of more than ~10% to the current market price[2]
We would be very surprised to see a truly independent board deem the current offer to be "unfair/unreasonable" after the last offer. IFAs in Singapore are increasingly coming under scrutiny as well for the work they provide.
As can be seen in the merger offer in 2020 which was comprehensively voted down, unitholders are astute enough to evaluate offers and act in their best interest.
Quarz’s interest is fully aligned with all independent unitholders of Sabana REIT. We urge all unitholders to work together to ensure that all our interests are protected.
VISIT AND REGISTER AT WWW.SAVESABANAREIT.COM FOR MORE INFORMATION
Sincerely yours,
Jan F. Moermann
Chief Investment Officer
Havard Chi
Head of Research
For further information, please contact:
IMPORTANT DISCLOSURE INFORMATION
SPECIAL NOTE REGARDING THIS LETTER
THIS LETTER CONTAINS OUR CURRENT VIEWS ON THE VALUE OF SABANA REIT’S (SSREIT SP EQUITY) SECURITIES AND ACTION THAT SABANA REIT’S BOARD MAY TAKE TO ENHANCE THE VALUE OF SABANA REIT’S SECURITIES. OUR VIEWS ARE BASED ON OUR ANALYSIS OF PUBLICLY AVAILABLE INFORMATION AND ASSUMPTIONS WE BELIEVE TO BE REASONABLE. THERE CAN BE NO ASSURANCE THAT THE INFORMATION WE CONSIDERED IS ACCURATE OR COMPLETE, NOR CAN THERE BE ANY ASSURANCE THAT OUR ASSUMPTIONS ARE CORRECT. SABANA REIT’s ACTUAL PERFORMANCE AND RESULTS MAY DIFFER MATERIALLY FROM OUR ASSUMPTIONS AND ANALYSIS. WE HAVE NOT SOUGHT, NOR HAVE WE RECEIVED, PERMISSION FROM ANY THIRD-PARTY TO INCLUDE THEIR INFORMATION IN THIS LETTER. ANY SUCH INFORMATION SHOULD NOT BE VIEWED AS INDICATING THE SUPPORT OF SUCH THIRD PARTY FOR THE VIEWS EXPRESSED HEREIN. WE DO NOT RECOMMEND OR ADVISE, NOR DO WE INTEND TO RECOMMEND OR ADVISE, ANY PERSON TO PURCHASE OR SELL SECURITIES AND NO ONE SHOULD RELY ON THIS LETTER OR ANY ASPECT OF THIS LETTER TO PURCHASE OR SELL SECURITIES OR CONSIDER PURCHASING OR SELLING SECURITIES. NOTHING HEREIN SHALL CONSTITUTE OR BE REGARDED AS INVESTMENT ADVICE. ALTHOUGH WE STATE IN THIS LETTER WHAT WE BELIEVE SHOULD BE THE VALUE OF SABANA REIT’S SECURITIES, THIS LETTER DOES NOT PURPORT TO BE, NOR SHOULD IT BE READ, AS AN EXPRESSION OF ANY PROJECTION, FORECAST OR PREDICTION AS TO THE PRICE AT WHICH SABANA REIT’S SECURITIES MAY TRADE OR MAY BE LIKELY TO TRADE AT ANY TIME. AS NOTED, THIS LETTER EXPRESSES OUR CURRENT VIEWS ON SABANA REIT. IT ALSO DISCLOSES OUR CURRENT HOLDINGS OF SABANA REIT SECURITIES. OUR VIEWS AND OUR HOLDINGS COULD CHANGE AT ANY TIME. WE MAY SELL ANY OR ALL OF OUR HOLDINGS OR INCREASE OUR HOLDINGS BY PURCHASING ADDITIONAL SECURITIES. WE MAY TAKE ANY OF THESE OR OTHER ACTIONS REGARDING SABANA REIT WITHOUT UPDATING THIS LETTER OR PROVIDING ANY NOTICE WHATSOEVER OF ANY SUCH CHANGES. INVESTORS SHOULD MAKE THEIR OWN DECISIONS REGARDING SABANA REIT AND ITS PROSPECTS WITHOUT RELYING ON, OR EVEN CONSIDERING, ANY OF THE INFORMATION CONTAINED IN THIS LETTER.
As of the publication date of this letter, Quarz Capital Management Ltd. and its affiliates (collectively "Quarz"), others that contributed research to this letter and others that we have shared our research with (collectively, the "Authors") have long positions in and own options on the securities of SABANA REIT (SSREIT SP) and stand to realize gains in the event that the price of such securities increases. Following publication of this letter, the Authors may transact in the securities of SABANA REIT. All content in this letter represent the assumptions and opinions of the Authors as of the publication date of this letter. The Authors have obtained all information herein from sources they believe to be accurate and reliable. However, such information is presented "as is", without warranty of any kind – whether express or implied. The Authors make no representation, express or implied, as to the accuracy, timeliness, reliability, fairness or completeness of any such information, opinions or conclusions expressed herein or with regard to the results obtained from its use and no liability whatsoever is accepted for any loss arising directly or indirectly as a result of any person acting upon any information, opinion or conclusion contained in this letter. All expressions of opinion are subject to change without notice, and the Authors do not undertake to update or supplement this letter, or any information, opinions or conclusions contained herein.
This letter is for informational purposes only and it is not intended as an official confirmation of any transaction. All market prices, data and other information are not warranted as to completeness or accuracy and are subject to change without notice. The information included in this letter is based upon selected public market data and reflects prevailing conditions and the Authors’ views as of this date, all of which are accordingly subject to change. The Authors’ assumptions, opinions and estimates constitute a best efforts judgment and should be regarded as indicative, preliminary and for illustrative purposes only.
Any investment involves substantial risks, including, but not limited to, pricing volatility, inadequate liquidity, and the potential complete loss of principal. The estimated fundamental value of the securities covered herein as expressed in this letter only represents a best effort estimate of the potential fundamental valuation of a specific security, and is not expressed as, or implied as, assessments of the quality of a security, a summary of past performance, or an actionable investment strategy for an investor.
This letter does not in any way constitute an offer or solicitation of an offer to buy or sell any investment, security, or commodity discussed herein or of any of the affiliates of the Authors. Also, this letter does not in any way constitute an offer or solicitation of an offer to buy or sell any security in any jurisdiction in which such an offer would be unlawful under the securities laws of such jurisdiction. To the best of the Authors’ abilities and beliefs, all information contained herein is accurate and reliable. The Authors reserve the rights for their affiliates, officers, and employees to hold cash or derivative positions in any company, entity or securities discussed in this letter at any time. As of the original publication date of this letter, investors should assume that the Authors are holding long position in SABANA REIT and have positions in financial derivatives that reference this security and stand to potentially realize gains in the event that the market valuation of SABANA REIT’s securities is higher than prior to the original publication date. These affiliates, officers, and individuals shall have no obligation to inform any investor about their historical, current, and future trading activities. In addition, the Authors may benefit from any change in the valuation of any other companies, securities, or commodities (if any) discussed in this document. Analysts who prepared this report are compensated based upon (among other factors) the overall profitability of the Authors’ operations and their affiliates. The compensation structure for the Authors’ analysts is generally a derivative of their effectiveness in generating and communicating new investment ideas and the performance of recommended strategies for the Authors. This could represent a potential conflict of interest in the statements and opinions in the Authors’ documents.
The information contained in this letter may include, or incorporate by reference, forward- looking statements, which would include any statements that are not statements of historical fact. Any or all of the Authors’ forward-looking assumptions, expectations, projections, intentions or beliefs about future events may turn out to be wrong. These forward-looking statements can be affected by inaccurate assumptions or by known or unknown risks, uncertainties and other factors, most of which are beyond the Authors’ control. Investors should conduct independent due diligence, with assistance from professional financial, legal and tax experts, on all securities, companies, and commodities discussed in this letter and develop a stand-alone judgment of the relevant markets prior to making any investment decision.
FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS CONTAINED IN THIS LETTER ARE FORWARD-LOOKING STATEMENTS INCLUDING, BUT NOT LIMITED TO, STATEMENTS THAT ARE PREDICTIONS OF OR INDICATE FUTURE EVENTS, TRENDS, PLANS OR OBJECTIVES. RELIANCE SHOULD NOT BE PLACED ON SUCH STATEMENTS BECAUSE, BY THEIR NATURE, THEY ARE SUBJECT TO KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES. FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE OR ACTIVITIES AND ARE SUBJECT TO MANY RISKS AND UNCERTAINTIES. DUE TO SUCH RISKS AND UNCERTAINTIES, ACTUAL EVENTS OR RESULTS OR ACTUAL PERFORMANCE MAY DIFFER MATERIALLY FROM THOSE REFLECTED OR CONTEMPLATED IN SUCH FORWARD-LOOKING STATEMENTS. FORWARD-LOOKING STATEMENTS CAN BE IDENTIFIED BY THE USE OF THE FUTURE TENSE OR OTHER FORWARD-LOOKING WORDS SUCH AS "VIEW," "BELIEVE," "CONVINCED," "EXPECT," "ANTICIPATE," "INTEND," "PLAN," "ESTIMATE," "SHOULD," "MAY," "WILL," "OBJECTIVE," "PROJECT," "FORECAST," "BELIEVES," "CONTINUE," "STRATEGY," "PROMISING," "POTENTIAL," "POSITION" OR THE NEGATIVE OF THOSE TERMS OR OTHER VARIATIONS OF THEM OR BY COMPARABLE TERMINOLOGY.
IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE EXPECTATIONS SET FORTH IN THIS LETTER INCLUDE, AMONG OTHER THINGS, THE FACTORS IDENTIFIED IN THE RISK SECTIONS IN SABANA REIT’S ANNUAL REPORT FOR THE YEAR ENDED DECEMBER 31ST, 2021 AND PROSPECTUS. SUCH FORWARD-LOOKING STATEMENTS SHOULD THEREFORE BE CONSIDERED IN LIGHT OF SUCH FACTORS, AND QUARZ CAPITAL MANAGEMENT IS UNDER NO OBLIGATION, AND EXPRESSLY DISCLAIMS ANY INTENTION OR OBLIGATION, TO UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE, EXCEPT AS REQUIRED BY LAW.
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[1] ESR-Logos REIT unit price (at closing) of S$0.33 on 20 February 2023 |