A fresh call for asset sales at Sabana Industrial Real Estate Investment Trust (Sabana Reit) has raised eyebrows among market watchers, with analysts cautioning that such a move might be premature given the ongoing internalisation of its management structure.
Unexpected EGM Requisition Stirs Controversy
Last month, a group of Sabana Reit unitholders, led by former independent director Charlie Chan, called for an extraordinary general meeting (EGM) to push for a price discovery process aimed at selling the Reit’s assets. This move is separate from previous EGMs initiated by activist investor Quarz Capital, which has been advocating for the internalisation of Sabana Reit’s management.
Chan and his fellow requisitionists argue that the costly and protracted internalisation process, which has already racked up expenses of S$11.39 million as of December 31, 2024, raises concerns about Sabana Reit’s long-term financial health. They further highlight the Reit’s underperformance compared to its peers and the potential for rising borrowing costs amid uncertain market conditions.
Proposed Resolutions and Their Implications
The group has tabled three resolutions for the upcoming EGM:
- Commencing a price discovery process to evaluate the potential sale of Sabana Reit’s assets.
- Appointing an internationally reputable property consultant to oversee the process, paid on a success basis with out-of-pocket expenses capped at S$8,000.
- Completing the process within three to four months, with findings presented to unitholders.
Despite these proposals, Sabana Reit’s internalisation committee and directors-elect (ICDE) have urged unitholders to vote against the resolutions. They argue that a recent valuation by Jones Lang LaSalle Property Consultants and CBRE renders a new price discovery process redundant and a waste of unitholders’ money.
Internalisation Challenges and Future Outlook
The internalisation initiative, which was initially pursued to improve corporate governance and enhance long-term value for unitholders, has been marred by legal battles and regulatory hurdles. Key challenges include securing a capital markets services (CMS) license for the new internal manager and recruiting a competent management team.
The ICDE has assured unitholders that, once the internalisation process is completed, all strategic options—including asset sales—will be considered. They also emphasize that major unitholders remain committed to internalisation as a means to maximize value.
The Bigger Picture: Navigating Uncertain Market Conditions
Sabana Reit’s current financial position presents both opportunities and risks. As of its last update, the Reit offers a 7.8% yield based on its 2024 distribution per unit (DPU) of S$0.0286 and is trading at a 27% discount to its net asset value (NAV) of S$0.50 per unit.
However, concerns remain over rising debt costs and the potential impact of sustained high interest rates. The recent auditor’s “emphasis of matter” warning about the possibility of loan recalls once the external manager is removed has further fueled uncertainty.
A Waiting Game for Unitholders
Given the significant progress made toward internalisation, analysts suggest that unitholders may be better off waiting for the new manager to assume control before making any major strategic decisions. Pushing for an asset sale at this stage may not yield optimal returns, particularly when the Reit is already trading at a substantial discount.
Ultimately, the more opportune moments for decisive action were in 2020—when Sabana Reit’s external manager proposed a controversial merger with ESR Reit—or in 2023, when the internalisation process began. With the current roadmap in place, unitholders may find it prudent to wait and see how internalisation unfolds before making their next move.
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