Activist Investor Admits Errors in Sabana REIT Manager Fight in Settlement with ESR

Activist investor Quarz Capital, which last year helped persuade investors in SGX-listed Sabana REIT to internalise the trust’s manager, now admits that the cost savings estimates it used to sell that campaign to investors were “incorrect and an error”.

Having estimated cost savings from internalisation at S$7.25 million ($5.4 million), the little-known company disclosed its errors regarding what investors could expect from the internalisation process as part of a settlement with warehouse giant ESR over claims made during its battle to wrest management of the REIT from ESR.

In a statement, which came after ESR sued Quarz for defamation in November of last year, the activist investor also agreed to take down a list of more than 10 publications it had issued as part of the internalisation campaign, without admitting any liability. ESR has long disputed claims by Quarz that internalising the REIT’s manager would result in cost savings, with investors now voicing concerns over a process which is rapidly exceeding earlier expense estimates.

The settlement was announced less than two weeks after Quarz, along with other unitholders, led the adoption of resolutions attempting to cap the costs of internalising the manager at S$10 million ($7.4 million) and to complete the process within one month of the meeting’s conclusion.

Savings Mirage

“We have always maintained that the cost-savings of internalisation have been grossly overstated and Quarz’s proposal does not take into full consideration the complexities of the internalisation process and the significant time and costs it will take, as per the trustee’s comments,” ESR said Monday.

The company chaired by Jeffrey Perlman said the “entire episode” has resulted in a diminished value of the unit price of Sabana REIT. “For us, the only goal is to achieve unity and profitability for all unitholders,” ESR said. As Quarz and other shareholders have waged the internalisation battle, Sabana REIT’s equity has lost nearly 22 percent of its value over the last year.

In its letter to the SGX, Quarz also admitted that its previous statements should not be understood to mean that ESR had acted in conflict of interest and that it was not alleging that ESR used “scare tactics” against unitholders of Singapore-listed Sabana REIT.

Quarz confirmed that it would not make the allegations against ESR in the future and that it would remove any references to them from its website and all publications within its control.

Mounting Costs

A unitholder group led by Singapore-based Quarz began issuing letters and web articles last June arguing for the internalisation of the ailing trust’s manager and demanding an extraordinary general meeting at which to set the process in motion.

HSBC Institutional Trust Services (Singapore), which is managing the internalisation process, has also cautioned that the effort will take longer than Quarz estimates, and pointed to the costs involved.

Resolutions including a proposed timeline for the internalisation were tabled at the EGM convened on 8 March. But ESR questioned the value of an exercise that had already cost the REIT’s trustee, HSBC Institutional Trust Services, about S$3.3 million in expenses relating to the internalisation.

Internalisation Drive Continues

In a statement last Friday acknowledging the settlement, Quarz continued to urge Sabana REIT unitholders to vote for the resolutions at the EGM in order to carry out the internalisation of the manager with as few obstacles as possible.

“We are fully focused on increasing shareholder value and corporate governance; we thank Sabana unitholders for their support and look forward to working with all unitholders to successfully effect Internalisation and increase value at Sabana REIT!” the investor said.

Sabana REIT’s portfolio comprises 18 industrial assets in Singapore with a total value in excess of S$1 billion ($740 million). ESR holds a stake of more than 20 percent in the trust and Quarz owns over 10 percent.