Quarz and Black Crane Demand Clear Answers and Actions from Sabana REIT Manager (SGX:M1GU) and Do Not Intend to Endorse Both the Proposed New Independent Directors
GEORGE TOWN,Cayman Islands,March 18,2021 -- The addition of the full year contribution of the new retail component potentially makes Sabana REIT one of the highest yielding SGX listed industrial REIT with Dividend Yield of ~8.3% despite having one of the lowest leverage levels.
Quarz and Black Crane call for Sabana REIT Manager to expedite on the execution of sizeable catalysts such as the development of untapped GFA,increase of occupancy rate and lower of interest cost to further increase DPU and close the substantial discount of ~25% which Sabana REIT is trading at to its book value.
Sabana REIT Manager should pay for all the fees of ~S$2.7m spent in the 'failed merger' which they are 100% responsible.These fees can be paid back to unitholders through the increase in 2021E DPU by ~8%.
Quarz and Black Crane thank MAS for subjecting new independent directors for endorsement by unitholders at the upcoming EGM to increase safeguard and alignment of interest with independent unitholders.
Quarz and Black Crane DO NOT INTEND TO ENDORSE BOTH THE PROPOSED NEW INDEPENDENT DIRECTORS UNTIL FURTHER DISCUSSIONS. Quarz and Black Crane are not convinced that the proposed directors are committed to defend independent unitholders' interests.
We caution Sabana REIT Manager from the perception that if independent unitholders vote down the directors,they can repeatedly appoint another 2 new directors' and put them up for endorsement. This would be a potential 'circumvention' and 'exploitation of loopholes' of the safeguard measures and regulation which MAS has put in to protect unitholders and reflects poorly on Sabana REIT Manager,its board of directors and ESR Cayman.
QUARZ AND BLACK CRANEINVITE ALL SABANA REIT UNITHOLDERS TO VISIT AND REGISTER AT THE WEBSITE WE HAVE PREPARED FOR INFORMATIONAL PURPOSES AT WWW.SAVESABANAREIT.COM
QUARZ CAPITAL MANAGEMENT AND BLACK CRANE CAPITAL ISSUE OPEN LETTER TOTHE MANAGEMENT AND BOARD OF SABANA REIT (SGX: M1GU)
ALL RECIPIENTS ARE ADVISED TO READ
"IMPORTANT DISCLOSURE INFORMATION"
AT THE END OF THE ATTACHED LETTER
18 March 2021
UNITHOLDERS DEMAND CLEAR ANSWERS AND ACTIONS FROM SABANA REIT MANAGER AND DO NOT INTEND TO ENDORSE BOTH THE PROPOSED NEW INDEPENDENT DIRECTORS UNTIL FURTHER DISCUSSIONS
Dear Mr. Han,Management and Members of the Board of Sabana REIT (SGX: M1GU),
We commend you and your team on the successful TOP of the new retail component at 151 Lorong Chuan ("New Tech Park"). Given that the ~43,000 sqft of retail space mostly comprises of higher rental value F&B,Food court and Supermarket,we estimate that this can add ~S$3.4million of net rental income and ~S$0.0029 of DPU to unitholders.
The full year contribution of the new retail component can potentially drive Sabana REIT's (SGX:M1GU,SSREIT SP Equity) annualized DPU to ~S$0.032,implying an attractive dividend yield in excess of ~8.3%[1]. This potentially makes Sabana one of the highest yielding SGX-listed industrial REIT despite having one of the lowest leverage levels.
The lease out of the Serangoon North asset to a prominent semiconductor MNC which resulted in a sharp increase in asset value also highlights the attractiveness of Sabana's portfolio in benefiting from structural growth trends such as E-Commerce and Technology.
As mentioned in our discussions,there are several levers which Sabana REIT can execute on to further increase dividend yield to unitholders:
1) Reduction of interest cost from 3.2%/3.1% in 3Q/4Q2020 to lower than 3% in 2021E
2) Increase in occupancy rate of the portfolio from ~76% to ~85%
3) Redevelopment projects and AEIs to further increase rental income. In particular,~200,000 sqft of GFA at New Tech Park can be developed. At an average rent of ~S$3.3 psf/mth,this results in a potential incremental net property income of ~S$6.8million and can increase DPU by more than 15% to a dividend yield of ~9.6%.
We expect the prompt execution of these sizeable catalyststo increase unitholder value and close the substantial discount of ~25% which the REIT is currently trading at to its book value of S$0.51 per unit.
A key outstanding issue is the S$2.7million cost of the failed merger.As we have communicated to you,SABANA REIT MANAGER SHOULD PAY FOR ALL THE FEES INCURRED as it is fully responsible for the failure of the value destructive proposed merger. This can be done through reducing the management fees payable to the REIT Manager in 2021 by the same amount,and then increasing the DPU paid to unitholders by S$2.7million ($0.00256 per unit),resulting in an ~8% increase in 2021E DPU
We thank MAS for requiring the new independent directors to be endorsed by independent unitholders at the upcoming AGM in April 2021. This key measure safeguards and increases the alignment of interest of independent unitholders and the board of directors.
As we have discussed with you,WE DO NOT INTEND TO ENDORSE BOTH THE PROPOSED NEW INDEPENDENT DIRECTORS UNTIL FURTHER DISCUSSIONS. Based on our meeting with them,we are not convinced that the proposed directors are committed to defend independent unitholders' interests. We believe that directors who can explore the full range of options for Sabana REIT to close the substantial valuation gap are required and not just directors who are suited to the continuation of 'business as usual'.
We also caution you from taking the view that even if independent unitholders vote down and do not endorse the new directors in the current AGM,the REIT Manager can 'simply' nominate another 2 new directors and put them up for endorsement in the next AGM.
Such action will be in effect a potential 'circumvention' and 'exploitation of loopholes' of the safeguarding measures and regulation put in place by MAS to protect independent unitholders. It also reflects poorly on the corporate governance standards of the board of directors,Sabana REIT and the sponsor,ESR Cayman.
We also remind you that ESR Cayman (HKG:1821 1821 HK Equity ),should have 'no say' in the nomination of any independent directors to the board of Sabana REIT Manager.Otherwise,this can be interpreted as 'control' over the business affairs and strategic directions of Sabana REIT and will be in direct conflict and contravention to what ESR Cayman has committed to MAS,i.e. that it is not involved and has no say in the strategic direction of Sabana REIT to prevent conflict of interest.
WE INVITE ALL SABANA REIT UNITHOLDERS TO VISIT AND REGISTER AT THE WEBSITE WE HAVE PREPARED FOR INFORMATIONAL PURPOSES AT WWW.SAVESABANAREIT.COM
After the 'fiasco' last year,this is a critical moment for Sabana REIT Manager and its board of directors to demonstrate their alignment of interest with independent unitholders who pay for more than ~75% of their management fees and salaries.
We look forward to our further discussions and working together to increase unitholder value and return at Sabana REIT.
Sincerely yours,
Jan F.Moermann
CIO,Quarz Capital Management
Peter Kennan
CIO,Black Crane Capital
For further information,please contact:
info@savesabanareit.com
Or visit:
www.savesabanareit.com
IMPORTANT DISCLOSURE INFORMATION
SPECIAL NOTE REGARDING THIS LETTER
THIS LETTER CONTAINS OUR CURRENT VIEWS ON THE VALUE OFSABANAREIT'S SECURITIES AND ACTION THATSABANAREIT'S BOARD MAY TAKE TO ENHANCE THE VALUE OF SABANAREIT'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.SABANAREIT'sACTUAL 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 OFSABANAREIT'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 WHICHSABANAREIT'SSECURITIES MAY TRADE OR MAY BE LIKELY TO TRADE AT ANY TIME. AS NOTED,THIS LETTER EXPRESSES OUR CURRENT VIEWS ONSABANAREIT. IT ALSO DISCLOSES OUR CURRENT HOLDINGS OFSABANAREITSECURITIES. OUR VIEWS AND OUR HOLDINGS COULD CHANGE AT ANY TIME. WE MAY SELL ANY OR ALL OF OUR HOLDINGS OR INCREASE OUR HOLDINGS BYPURCHASING ADDITIONAL SECURITIES. WE MAY TAKE ANY OF THESE OR OTHER ACTIONS REGARDINGSABANAREITWITHOUT UPDATING THIS LETTER OR PROVIDING ANY NOTICE WHATSOEVER OF ANY SUCH CHANGES. INVESTORS SHOULD MAKE THEIR OWN DECISIONS REGARDINGSABANAREITAND 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. / Black Crane Capital and its affiliates (collectively "Quarz" and "Black Crane"),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 SABANAREIT 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 SABANAREIT. 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 useand 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 efforts 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 theAuthors are holding long position inSABANAREITand have positions in financial derivatives that reference this security and stand to potentially realize gains in the event that the market valuation of SABANAREIT'ssecurities is higher than prior to the original publication date. These affiliates,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 INSABANAREIT'SANNUAL REPORT FOR THE YEAR ENDEDDECEMBER31ST,2019AND PROSPECTUS. SUCH FORWARD-LOOKING STATEMENTS SHOULD THEREFORE BE CONSIDERED IN LIGHT OF SUCH FACTORS,AND QUARZ CAPITAL MANAGEMENT AND BLACK CRANE CAPITAL ARE 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.
[1]
Based on unit price of S$0.385 on 17 March 2021
