https://www.businesstimes.com.sg/property/singapore-needs-reforms-revive-its-reits

Singapore needs reforms to revive its Reits

The manager of Sabana Industrial REIT has launched and priced $100 million in sustainability-linked guaranteed bonds.

 

The bonds are due in 2029 and will bear an interest rate of 4.15% per annum, payable semi-annually in arrear. They will be issued at 100% of their principal amount and in denominations of $250,000.

 

Under the bonds&rsquo terms and conditions, the REIT trustee, the issuer of the bonds, has set a sustainability target where the REIT should achieve at least a 24% reduction in absolute Scope 2 greenhouse gas (GHG) emissions from 2023 by the financial year ending on the target&rsquo s observation date.

 

In a separate release, Sabana REIT says it is targeting a 30% absolute reduction of Scope 2 GHG emissions by 2028.

 

Some of these initiatives include the REIT&rsquo s partnership with Keppel Energy-as-a-Service (EaaS), a wholly-owned subsidiary of Keppel Infrastructure, to implement and jointly execute decarbonisation solutions. Such solutions include the installation of solar panels across nine portfolio properties.

 

&ldquo We are pleased with the strong vote of confidence from investors in our first sustainability-linked bond issue, a clear signal of the market&rsquo s positive reception towards the REIT&rsquo s sustainability plans. This serves to expand our capital financing options, and will enable the REIT to meet our target to convert all financing facilities into sustainability-linked or green loans by 2025. Our raising of capital through debt financing is also aligned with the REIT&rsquo s prudent capital management approach,&rdquo says Donald Han, CEO of the manager.

 

&ldquo We remain committed to achieving sustainability and are continuing with our efforts to implement solar panel installations across selected portfolio assets. By 4Q 2024, the majority of our multi-tenanted properties will be powered by renewable energy. The REIT is well on track to achieve our goal of becoming one of Singapore&rsquo s first carbon-neutral industrial REITs by 2040,&rdquo he adds. &ldquo We wish to thank CGIF and our joint lead managers (CIMB and HSBC) for their support of this deal to diversify our funding sources.&rdquo

 

&ldquo CGIF is very thrilled to support Sabana Industrial REIT&rsquo s strong environmental, social and governance (ESG)-initiatives, including the issuance of the sustainability-linked bond under Asean and [the] International Capital Market Association (ICMA) Standards. This issuance is a new milestone for CGIF, representing the first-ever sustainability-linked bond in our portfolio and our commitment to our mandate to support thematic bonds in the region,&rdquo says Wang Hongwei, CEO of CGIF.

 

&ldquo With the partnership from the joint lead managers (CIMB and HSBC), through risk-sharing, CGIF underscores the developmental impact of this deal by allowing Sabana Industrial REIT to extend its weighted average maturity and diversify funding sources,&rdquo he adds.

 

The issuer will redeem the bonds at their principal amount on June 25, 2029.

Quarz Capital alleges that the bond issuance is &lsquo highly abnormal&rsquo and may put the trust in &lsquo financial jeopardy&rsquo

THE manager of Sabana Industrial Real Estate Investment Trust : M1GU -1.41% (Sabana Reit) has denied allegations that the upcoming issuance of its sustainability-linked bond puts the trust in &ldquo financial jeopardy&rdquo , nor does it &ldquo complicate and impede&rdquo its internalisation process.

 

This was in response to allegations by activitist investor Quarz Capital in a letter dated Jun 14.

 

In the letter, Quarz said the Reit&rsquo s upcoming bond issuance of S$100 million five-year sustainability-linked bonds is &ldquo highly abnormal and extraordinary&rdquo since the trust currently has &ldquo zero refinancing needs&rdquo . This is especially since the S$100 million term loan maturing in October 2024 was refinanced with a new S$100 million four-year unsecured facility in May 2024, it said.

 

Quarz is also concerned that the bond terms could &ldquo potentially result in substantial disruptions to Sabana Reit if the sponsor (ceases to hold) at least 50.1 per cent of the Reit manager&rdquo .

 

The bond issuance may also &ldquo substantially complicate and impede the internalsation process to potentially entrench the current Reit manager and its sponsor from being removed&rdquo and even put it in &ldquo financial jeopardy&rdquo , said Quarz.

 

In a bourse filing on Monday (Jun 17) evening, the manager of Sabana Reit clarified that it has been working on the bond issuance since June 2022, before Quarz even requested to convene an extraordianry general meeting to discuss its internalisation.

 

The bond issuance is being undertaken by the manager in accordance with its fudiciary duty to act in the interests of the unitholders, and will help to &ldquo stabilise the cost of funding, diversify the sources of funding, and mitigate the refinancing risks&rdquo for the Reit, said the manager.

 

&ldquo Contrary to Quarz&rsquo s allegation... such refinancing exercise is essential to the capital management planning for (the Reit),&rdquo the manager added. &ldquo It is not in the interest of Sabana Reit for such refinancing exercise to be put on hold on account of the ongoing internalisation exercise, especially in view of the attendant uncertainties and in the current high interest rate environment.&rdquo

 

The manager cited its first quarter in FY2024, for instance, when the trust faced &ldquo operational challenges in obtaining hedging arrangements&rdquo . This resulted in its proportion of fixed rate borrowing dropping to 51.8 per cent, it said.

 

The completion of the bond issuance will improve this figure to more than 80 per cent and significantly reduces interest rate risks while improving stability to the cost of funding, said the manager. &ldquo As the primary use of proceeds from the bond issuance is to refinance the debt tranche expiring in 2025, this is expected to have neutral impact on the Reit&rsquo s gearing ratio upon the completion,&rdquo it added.

 

Furthermore, the manager explained that it is &ldquo common and prudent practice&rdquo to plan ahead for refinancings and these are commonly undertaken at least a year before the expiry of current financings. &ldquo This is to provide flexibility for the borrower and cater for ample time to negotiates terms,&rdquo it said.

 

It also highlighted that it is an event of default should the manager resign or be removed without any replacement or substitute manager. And should the manager be replaced, the bonds will still continue to their scheduled maturity.

An EGM will also facilitate the progress of workstreams previously delayed due to various uncertainties, it says

 

SABANA Industrial Real Estate Investment Trust&rsquo s (Sabana Reit : M1GU -1.43%) trustee said that it will &ldquo work expeditiously&rdquo to convene an extraordinary general meeting (EGM) for unitholders to approve proposed amendments to the trust deed.

 

Such amendments are deemed necessary to effect the internalisation of its management function and the EGM will &ldquo provide clarity and certainty&rdquo for unitholders, said HSBC Institutional Trust Services on Wednesday (Jun 12).

 

An EGM will also facilitate the progress of workstreams previously delayed due to various uncertainties, noted the trustee, adding that it was a &ldquo logical and necessary next step in the internalisation process&rdquo .

 

The trustee&rsquo s intended EGM, however, differs from a separate EGM called for by requisitionists in a Jun 6 letter, where Sabana Reit&rsquo s manager previously noted &ldquo entirely new and different resolutions&rdquo proposed as compared to an earlier May 29 letter.

 

As at Wednesday, HSBC Institutional Trust Services said that the manager was in the process of considering these latest requisitioned resolutions and seeking legal advice.

 

Should the manager decide to convene an EGM to table these resolutions, the trustee added that it will endeavour to table other resolutions relevant to the internalisation &ndash including those from its own intended EGM &ndash at the requisitionists&rsquo EGM.

 

Being able to consider all resolutions at a combined EGM in a &ldquo holistic, orderly and efficient manner&rdquo would be in the interests of all unitholders, noted HSBC Institutional Trust Services.

 

Additionally, the trustee established a new wholly owned entity for the purposes of acting as Sabana Reit&rsquo s internalised manager.

 

Remaining outstanding workstreams include identifying and continuing to engage with qualified candidates whom the trustee intends to propose as directors and senior management of the new manager, as well as formulating a funding and operational model for the manager.

 

Upon finalising these two workstreams, the trustee intends to apply for a capital markets services licence for the new internalised manager.

 

The tenant, biotechnology company GDMC, accounted for 2.4% of the Reit&rsquo s total gross rental income for the FY ended Dec 31, 2023

 

THE tenant of Sabana Industrial Real Estate Investment Trust : M1GU 0% (Sabana Reit) at 30 and 32 Tuas Avenue 8 has been placed in provisional liquidation.

 

The Reit&rsquo s manager said in a bourse filing on Tuesday (Jun 11) that the tenant in question, biotechnology company GDMC, accounted for about 2.4 per cent of the Reit&rsquo s total gross rental income for the financial year ended Dec 31, 2023.

 

The manager expects that the overall impact to the Reit will be about 2.3 per cent of its pro forma distribution per unit in FY 2023.

 

The premises comprise two original &ldquo E8&rdquo JTC standard factories and an adjoining four-storey facility, with ancillary offices spanning 158,846 square feet in gross floor area.

 

Sabana Reit&rsquo s manager said that it is taking legal advice and will do what it can to limit the losses from this, including entering the premises, marketing the asset to prospective tenants, and offsetting outstanding rental payments with the tenant&rsquo s security deposit.

 

It noted that GDMC had paid its rent up to April.

Move comes after Monday&rsquo s announcement from the manager that the EGM will not proceed

 

UNITHOLDERS of Sabana Industrial Real Estate Investment Trust (Sabana Reit) are urging the manager&rsquo s directors to hold the extraordinary general meeting (EGM) with amended resolutions using the original timeline and as soon as possible.

 

An announcement posted by the Reit to the bourse on Friday (Jun 7) came attached with a fresh requisition letter from the unitholders dated Jun 6, deposited at the Reit manager&rsquo s registered office the same day.

 

This comes after Monday&rsquo s announcement that the Reit&rsquo s manager will not be issuing a notice of the postponed EGM further to the prior requisition notice.

 

The explanation given then was that the requisitionists &ldquo are proposing entirely new and different resolutions&rdquo , which &ldquo amounts to a withdrawal of the requisition notice&rdquo .

 

In response to the latest letter, the manager noted that it &ldquo contains various unsubstantiated allegations against the manager and its directors&rdquo that are &ldquo unfounded&rdquo .

 

It said that it is considering the new resolutions proposed in the May 29 letter with the latest letter, and that it will discuss the next steps with the trustee.

 

It also added that the resolutions proposed in the Jun 6 letter &ldquo contain certain modifications&rdquo to the resolutions proposed in the earlier May 29 letter that were &ldquo not highlighted by the requisitionists&rdquo in their latest letter.

 

Any EGM, if to be convened, will be called by the manager to be held within the two-month timeframe in line with Singapore&rsquo s Companies Act 1967, it added.

 

The extraordinary general meeting (EGM) requisitioned by minority unitholders who hold over 10% of the units in Sabana REIT, will not proceed. The unitholders include activist investor, Quarz Capital Asia, which has a 13.73% stake in the REIT as at March 8.

 

The unitholders requested for an EGM to be convened via a letter dated March 25. The EGM was to have Sabana REIT&rsquo s unitholders consider a total of seven resolutions, including having the REIT&rsquo s trustee provide a clear timeline as to when the internalisation of the REIT manager can be completed.

 

The unitholders, in their March 25 letter, proposed that the EGM be held right after Sabana REIT&rsquo s annual general meeting (AGM) some time in April, or have the resolutions tabled at the AGM.

 

The EGM didn&rsquo t happen as the unitholders, via a letter dated April 18, requested to withdraw or modify some of the resolutions proposed.

 

On May 9, the REIT issued a notice of EGM, which stipulated that the EGM will be held at 5.30pm on May 24.

 

On May 13, ESR Group, E-Shang Jupiter Cayman Limited and E-Shang Infinity Cayman Limited filed an application to the high court in Singapore &ndash and against the REIT manager, the REIT trustee and Quarz Capital Asia &ndash to put a temporary halt to the commencing of the EGM. The high court ordered that the EGM should not proceed. It also ordered the manager to issue a notice of the postponed meeting by June 6 unless the unitholders withdraw their requisition.

 

On May 29, the same minority unitholders sent another letter requesting to change the resolutions proposed in the requisition notice. The manager, in its June 3 statement, notes that the resolutions proposed are &ldquo entirely new and different&rdquo . As such, the letter amounts to a withdrawal of the requisition notice and the manager will not be issuing a notice of postponed meeting.

 

Further to its statement, the manager says it is considering the new resolutions proposed and is seeking legal advice. Among the new resolutions proposed in the May 29 letter is the request to clarify &ldquo certain dealings with related corporations for the manager&rdquo .

The potential changes to the resolutions include incorporating internal manager within a month

 

THE manager of Sabana Industrial Real Estate Investment Trust (Sabana Reit) is considering several modifications to the resolutions proposed by Quarz Capital while seeking legal advice, it said on Wednesday (May 29).

 

The extraordinary general meeting (EGM) requisitionists proposed changes to the resolutions in response to the court ruling updated last Friday that requires trust deed amendments to effect the internalisation of the manager function.

 

&ldquo The modifications are done with the intention for Sabana unitholders to provide clarity to the trustee and expedite the internalisation process which is in line with the trustee&rsquo s stated intention in its May 24 update,&rdquo said the requisitionists, adding that this is in the &ldquo best interest of and highly beneficial to all Sabana unitholders&rdquo . 

 

The proposed changes include necessitating amendments to the trust deed as per the court ruling, which set out certain dealing conditions for the manager with related corporations.

 

This is changed from the first resolution that &ldquo the trustee be directed not to amend trust deed related to clearly and expressly authorising Sabana Industrial Reit to hold unlisted shares in a company providing internal Reit management functions&rdquo .

 

The passing of this changed resolution will enable the trustee to incorporate and fund the internal manager which will be owned by all Sabana unitholders, said the requisitionists.

 

In line with the trustee&rsquo s indicative internalisation timetable to establish the new internalised manager by the beginning of Q2 2024, Quarz Capital also proposed to amend the second resolution to direct the trustee to incorporate the internal manager within one month from the passing of the first resolution.

 

Additionally, the trustee should submit the necessary licensing application for the internal manager within one and a half months from the passing of the first resolution, as it proposed to amend the third resolution.

 

Among other proposed changes, the requisitionists have withdrawn the resolution deemed unnecessary to effect internalisation as per the court ruling.

 

Meanwhile, the requisitionists requested the EGM proceed without any change of the existing timeline.

 

As HSBC Institutional Trust Services, in its capacity as trustee of Sabana Reit, has been directed by unitholders to effect the internalisation exercise, the manager noted that it will be discussing the proposed amendments with the trustee on the next steps.

 

The Singapore High Court also ruled that ESR entities are prohibited from voting on the amendments, said the trustee on May 24.

 

The ruling was on the trustee&rsquo s application filed in January, which sought court declarations that proposed amendments were required to implement internalisation. It also needed a declaration on whether ESR entities ought to be permitted to vote on the amendments.

 

The internalisation saga began nearly a year ago. Activist investor Quarz Capital requisitioned an EGM last June to pass two resolutions relating to the internalisation of Sabana Reit&rsquo s manager. It said that the cost savings by removing the external manager would benefit unitholders.

 

On the other hand, the owner of Sabana Reit&rsquo s manager sponsor ESR Group, warned about risks and uncertainty for unitholders. This is on top of a considerable amount of time and costs involved in such internalisation.

 

On Aug 7, 2023, unitholders of Sabana Reit voted in favour of internalisation. However, the amendment of the trust deed had been a point of disagreement.

 

The trustee held the view that such an amendment is needed for internalisation, requiring an extraordinary resolution, which has a 75 per cent approval threshold. Quarz, however, disagreed. It was previously said that this was an &ldquo impossibly high threshold&rdquo , and requiring a trust-deed amendment has a &ldquo serious and negative impact&rdquo on unitholders.

The court ruling will likely provide greater clarity for Sabana Reit&rsquo s unitholders

 

THE Singapore High Court has ruled that trust deed amendments are required to effect the internalisation of the manager function of Sabana Industrial Real Estate Investment Trust (Sabana Reit).

 

But it also ruled that ESR entities are prohibited from voting on the amendments, said HSBC Institutional Trust Services (Singapore) &ndash the trustee of Sabana Reit &ndash in a bourse filing on Friday (May 24).

 

The court ruling, which arose from an Order 32 application by the trustee to clarify steps for the internalisation process, would likely provide greater clarity for Sabana Reit&rsquo s unitholders, who have been through several extraordinary general meetings (EGMs) and witnessed disagreements between the various parties in the saga that began nearly a year ago.

 

The trustee filed the application in January, seeking court declarations that proposed amendments to the trust deed are required to implement internalisation. It also sought a declaration on whether ESR entities ought to be permitted to vote on the amendments.

 

The application was heard in court this week. It has been ruled that certain amendments to the trust deed are necessary to permit the trustee to invest trust funds in the manager. The amendments are in relation to Clause 16.4. Amendments to other clauses, such as those relating to authorised investments or disclosure requirements, are not necessary to effect internalisation.

 

Meanwhile, the court also ruled that Sabana Reit&rsquo s trust deed prohibits ESR entities from voting on the proposed amendments, as ESR has an interest from fee income the external manager earns.

 

Sabana Reit&rsquo s trust deed has a provision that prohibits the manager and any associate from voting on a matter where the relevant controlling shareholders of the manager or any associate has a material interest.

 

The ruling may come as a surprise to some investors. Singapore Exchange Regulation (SGX RegCo) said last month that ESR Group and its related parties would not need to abstain from voting on any proposed trust deed amendments based on listing rules.

 

In response to queries from The Business Times, a spokesperson from SGX RegCo said: &ldquo We note the court&rsquo s decision which provides clarity for the trustee, who can now consider whether an EGM is necessary to effect the changes to the trust deed. We look forward to the expeditious completion of the internalisation process for the benefit of all unitholders.&rdquo

 

The trustee said it is assessing the Order 32 ruling and is working with advisers on the appropriate next steps for internalisation.

 

&ldquo The progress of the internalisation has been delayed and impeded by disagreements over the proper interpretation of the trust deed. With the confirmations and guidance provided by the court, the trustee will now seek to make significant and substantive progress without further disruptions and delay,&rdquo it said.

 

The bid to internalise the manager function of Sabana Reit began nearly a year ago. In June 2023, activist investor Quarz Capital requisitioned an EGM to pass two resolutions relating to the internalisation of Sabana Reit&rsquo s manager. It said that the cost savings to be reaped from the removal of the external manager would benefit unitholders.

 

However, Sabana Reit&rsquo s manager, the trustee and sponsor ESR Group, warned that the process was not so straightforward, as there were risks and uncertainty for unitholders. The trustee also noted that the process would take a considerable amount of time &ndash at least 12 months &ndash and that costs would be incurred in the process.

 

On Aug 7, 2023, unitholders of Sabana Reit voted in favour of internalisation, and both resolutions were carried. But the process has not been straightforward, with the amendment of the trust deed having been a sticking point.

 

The trustee has held the view that such an amendment is needed for internalisation, requiring an extraordinary resolution, which has a 75 per cent approval threshold. Quarz, however, disagreed. It previously said that this was an &ldquo impossibly high threshold&rdquo , and requiring a trust-deed amendment has a &ldquo serious and negative impact&rdquo on unit holders.

 

Havard Chi, head of research at Quarz Capital, called the court ruling a &ldquo landmark victory&rdquo for unit holders.

 

&ldquo Sabana unitholders are now even closer to the successful completion of internalisation, where all unitholders will own the manager and benefit from the increase in DPU (distribution per unit) and corporate governance,&rdquo he said.

 

&ldquo With the clarity and clear direction from the court, the Sabana Growth Internalisation Committee urges the trustee to work with unitholders and the internalisation committee such that the process can be completed as expeditiously and efficiently as possible for the benefit of all unit holders.&rdquo

 

BT has reached out to ESR Group for comment.