The latest fiasco revolving around Sabana REIT is an ex-director and unit-holder, Charlie Chan Wai Kheong, has made a requistion for an EGM after gathering support of several other unit-holders to have the minimum more than 10% holdings. Makes one wonder whether ESR is one of the myesterious unit-holders in support of Charlie given his close relationship and past dealings with them. The main essence of the agenda is to make the Manager of Sabana REIT undertake a sale discovery process for the market value of the investment properties held as a precusor to a sale. According to Charlie, the sales of all the major assets of Sabana REIT will offer the best return to all unit-holders instead of the current manager internalisation exercise which has already incurred additonal expenses of S$10.2Mil. For the fun of it, Charlie Chan had previously been rejected from his proposed nomination into the Board of Directors in 2022 AGM. Quarz Capital, an institutional investor who was leading a dissent against Chan’s appointment, had long pointed to potential conflicts of interest given his substantial stake in AIMS APAC REIT and given his prior business dealings with ESR Cayman.
This means that the requested EGM will add further complication to the already ongoing tussle and further distract the management from its main business of running Sabana REIT.
1. Price Discovery Request Not At All Bad- Depending on One's Entry Price
The current market unit price of Sabana REIT is trading at S$0.370 per unit as at 20 January 2025 while tangible book value per share is at S$0.520 per unit. This is an almost +40% upside if the price discovery process turned out that there are willing buyers who can pay as much as what the valuers are forecasting and offer a good opportunity for all unit-holders to to exit their investments. But don't be too surprised if ESR Group turned up to be one of the buyers. They have been eyeing on the investment properties of Sabana REIT for a long time and very nearly got away with a good bargain price before Quartz came into the picture to frustrate their efforts. Personally, I thought that Quartz and ESR are eternal rivals and the current tussle for control is far from over.
2. Valuation Reports Done and Price Discovery Process Request Can Be Very Different Creature Altogether.
Another point to note is that the valuation done during the financial year end by management and relied on by external auditors is just an abstract and assembly of valuation techniques. It can be as simple as a present value of all future rental income forecast over the expected life of the properties or just an adjustment of parameters of another similar propery in the vincinity to derive a market value. But this year end valuation report may not reflect the exact realisable value and thus a totally different creature relative to the price discovery requistion from Charlie.
For example, there were a lack of buyers for US Office Commercial real estates as banks were unwilling to lend them funds for acquisition even if the valuation appears to be high.
Parting Thoughts
Personally, I thought that the current fiasco will only further distract Sabana REIT's management team from focusing on the running of the business and ongoing internalisation exercise. All stakeholders will be equally worst off. Nevertheless, being listed means that one has to respect the wishes of all other unit-holders who maybe having second thoughts on the initial support for internalisation and wanted a quick exit strategy.
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