Activist Insight Online | Wednesday, November 18, 2020
Quarz, Black Crane want Sabana to internalize management
This article was first published on Activist Insight Online on November 18, 2020. For more information about the module, click here.
Quarz Capital and Black Crane Capital have revealed plans to push Singapore-listed Sabana Shariah Compliant REIT to internalize its investment manager, arguing this would alleviate concerns regarding conflicts of interest and boost value.
Quarz and Black Crane said internalizing Sabana’s manager would lead to an “immediate” increase of Sabana’s distribution per unit (DPU) by about 7.5% through the elimination of the burdensome fees owed by the manager to its controlling shareholder, ESR Cayman, according to a statement seen by Activist Insight Online.
Moreover, the internalization “aligns the interests of all unitholders by removing the ESR conflicts and thereby enabling Sabana to realize its full value,” the activists contended.
Quarz and Black Crane are fighting to see a planned merger between Sabana and rival ESR REIT scrapped, arguing it is a bad deal for Sabana shareholders. The arrangement offers Sabana shareholders 0.94 shares in ESR for each share held, a ratio criticized by Quarz and Black Crane for substantially undervaluing Sabana.
The activists have explained in a number of letters posted on a dedicated website why they believe the tie-up is plagued by conflicts of interests stemming from the influence of ESR Cayman over the two companies and would potentially destroy “tremendous value” for Sabana shareholders.
Earlier this month, the activist duo requisitioned a special meeting aiming to unearth evidence of this conflicting situation and also force Sabana to distribute more of the cash earned this year.
Quarz and Black Crane want Sabana to internalize its manager after the deal with ESR REIT is voted down. The next step would be for the internal manager to close the substantial NAV (net asset value) discount affecting Sabana’s stock by improving its performance while also exploring potential asset disposals, the activists said. Any surplus capital should be returned to shareholders, they added.
The two activists proposed a number of steps to improve Sabana’s performance such as a “timely completion and rent out of the retail component” at its 151 Lorong Chuan asset in the first quarter next year, which Quarz and Black Crane reckon could add SG$0.301 cent to DPU. Another SG$0.28 cent would come from the optimization of Sabana’s portfolio occupancy to 82%, from 77% at present.
In the near term, Black Crane and Quarz plan to seek the replacement of Sabana’s current manager, the statement also reveals.