The follow message was sent as a bulletin to ineligible clients:

With respect to your submission to the preferential offering of Ascendas REIT (A17U@SGX), your account with us does not qualify the QIBs/PI or equivalent status as stated in the Company's prospectus. As such, we cannot proceed with your application. If you believe you are qualified for QIBs/PI status as stated in the Company's prospectus, please submit a ticket with relevant proof via Client Portal > Support > Message Center to declare such status, and we will handle your case on a best effort basis. Thank you.

According to the description for this preferential rights offer, Unitholders located in Malaysia must be "sophisticated investors" to be eligible to participate in the offer. Thank you.

Thanks for your answer. That's why I said somehow FSM can bypass that stupid rule. Hence all my sreits are under them.

Actually they think everyone got SGD2m to be certified as sophisticated investor???

Ben Paul

7 December 2020
Business Times Singapore
STBT
English
© 2020 Singapore Press Holdings Limited


THE controversial proposed merger of Sabana Shari'ah Compliant Real Estate Investment Trust (Sabana Reit) and ESR-Reit came to an end this past week, but not in the manner most market watchers expected.

As the meetings for unitholders to vote on the deal approached, it looked like the transaction would go through despite the efforts of a small but organised group of dissident investors at Sabana Reit.

At that eleventh hour, the opponents to the deal were not just worried they might fail to muster sufficient support from their fellow unitholders to thwart the merger but also that the deal might take place even if they did.

Unitholders of Sabana Reit were to have voted on two matters on Dec 4. The first was to amend the trust deed of Sabana Reit to facilitate the merger. The amendments would, among other things, require unitholders to appoint only one proxy to attend and vote at the scheme meeting that was to have followed.

While the resolution to amend the trust deed required the support of 75 per cent of units voting at the extraordinary general meeting, the scheme resolution required the support of more than 50 per cent of unitholders (by headcount) voting at least 75 per cent of the units at the scheme meeting.

As The Business Times reported last week, this potentially left each share custodian in the position of having to figure out how to aggregate on a single proxy form the numbers of its clients, as well as the units they held, voting for or against the scheme resolution.

The concern was the custodians would adopt different methods in collating the votes, resulting in the intentions of investors not being properly reflected in the outcome of the scheme meeting.

As it happened, the dissident investors had nothing to worry about. The trust deed amendment resolution failed to obtain the required 75 per cent support, which resulted in the scheme meeting not taking place.

More than 576.2 million - or 54.9 per cent - of Sabana Reit's units were voted, without any party having to abstain. Two-thirds of the votes - 66.67 per cent - were for the resolution while the remaining one-third - or 33.33 per cent - were against.

Even if the scheme meeting had been held, it seems unlikely that the scheme resolution would have been passed. For one thing, the ESR-Reit concert party group, which holds 24.57 per cent of Sabana Reit, would have been required to abstain from voting at the scheme meeting.

Assuming this block of unitholders voted for the trust deed amendment, the remaining supporters of the resolution, who are likely to have also voted in favour of the scheme resolution, would have held about 12 per cent of Sabana Reit's total outstanding units.

This is well below the roughly 18 per cent of Sabana Reit's outstanding units that voted against the trust deed amendment, and would likely have voted against the scheme resolution.

So, why was the manager of Sabana Reit unable to convince its unitholders to support the merger plan? What lessons can be learned from this episode?

Activist resistance

Clearly, the presence of activist minority investors with substantial stakes in Sabana Reit was a pivotal factor.

Without Quarz Capital Management and Black Crane Capital, which claim to have influence over 11 per cent of Sabana Reit's units, it is very unlikely that the trust deed amendment resolution would have been voted down.

And, if the scheme meeting had been held without Quarz and Black Crane wielding their 11 per cent block of units, it is mathematically possible that the one-proxy rule foisted on share custodians could have resulted in the scheme resolution being passed.

Moreover, without the leadership of Quarz and Black Crane, fewer minority unitholders of Sabana Reit may have turned out to vote against the deal.

Bad deal, inept handling

Another key reason the merger proposal failed was simply that unitholders of Sabana Reit were getting a raw deal. While the merger offered immediate accretion in distribution per unit (DPU), it valued Sabana Reit at a steep discount to its book value.

The lesson here is that even though DPU yield is the primary valuation yardstick for Reits, when it comes to mergers and acquisitions involving underperforming Reits, book value cannot be completely ignored.

It did not help that the managers of Sabana Reit and ESR-Reit proved to be inept at promoting and executing the merger plan.

For starters, the terms of the merger were cast in stone before ensuring that they were acceptable to Quarz and Black Crane.

The manager of Sabana Reit then became overly focused on selling the merger and countering statements by Quarz and Black Crane, instead of working with the manager of ESR-Reit to sweeten the deal.

In the merger of CapitaLand Mall Trust (CMT) and CapitaLand Commercial Trust (CCT), the acquisition fees due to the manager of CMT were eventually waived to win over investors.

The managers of Sabana Reit and ESR-Reit could have made a similar gesture. Doing so might have raised the market prices of ESR-Reit and Sabana Reit's units, and undercut plans by Quarz and Black Crane to set up an internal manager at Sabana Reit.

Focus on quality Reits

As for investors, this whole episode ironically underscores the risks of investing in underperforming Reits on the basis of "value".

Reits are hardwired to raise funds and grow their asset portfolios. Even when the market capitalisation of a Reit sinks well below the book value of its assets, its manager is likely to resist liquidating the portfolio to realise value. A Reit manager is far more likely to pursue strategies that preserve the portfolio.

The proposed merger of Sabana Reit and ESR-Reit also demonstrated that the key protections minority unitholders rely upon can be ineffective. Although the board of Sabana Reit's manager consisted entirely of independent directors, unitholders were nevertheless presented with a proposal that many of them viewed as being value destructive.

The independent financial adviser also declared the financial terms of the merger to be "fair and reasonable", even though its terms of reference suggest it had not considered whether the DPU accretion as a result of the transaction was any better than the standalone DPU growth the Reit would achieve anyway.

Most gallingly, regulators defended the one-proxy rule. The Securities Industry Council suggested that investors affected by the issue could choose to hold their units directly instead of via nominee or custodian accounts.

In my view, the market would have been better served if regulators had emphasised the importance of ensuring that investors are not disenfranchised, and had pledged to ensure a fair outcome.

The dogged determination displayed by the dissident unitholders of Sabana Reit should be applauded. They may well succeed in unlocking significant value.

Yet, the lesson investors should take away from everything that has happened is that they would be far better off focusing on high quality Reits that have proven themselves capable of growing by raising funds and making DPU-accretive acquisitions.

Singapore Press Holdings Limited

HOCK LOCK SIEW; Proper incentives, business acumen needed for internalised Reit manager model to work
Lee Meixian

10 December 2020
Business Times Singapore
STBT
English
© 2020 Singapore Press Holdings Limited
THE failed merger between Sabana Shari'ah Compliant Real Estate Investment Trust (Sabana Reit) and ESR-Reit has resurfaced the question of whether an internalised Reit management model is viable for Singapore Reits (S-Reits) in the sponsor-controlled universe here.

Sabana Reit unitholders had tried and failed to internalise the Reit's manager at a 2017 extraordinary general meeting (EGM).

The only successful case of internalisation here is that of Japanese mall landlord Croesus Retail Trust (CRT) in 2016. CRT was bought and privatised by Blackstone in 2017, at a 23 per cent premium to its net asset value and 24 per cent premium to its last traded price pre-announcement.

The example of CRT would suggest that internalisation in the local context is possible and viable. But two ingredients are needed: A proper incentive programme for the internal manager, and a good relationship with a well-stocked sponsor. Without a sponsor relationship, business acumen to build up partnerships for an asset pipeline is crucial.

Pros and cons

There are cases to be made for both internal and external managers.

In Singapore, Japan and Hong Kong, external management is the default structure - mostly because Reits here started out as capital recycling vehicles for property developers.

Patrick Lecomte, associate professor in real estate at Henley Business School Malaysia, noted that in many Asian countries, Reits are passively managed legal structures rather than actively managed corporate entities with accountable management.

In Australia and the United States, however, Reits are mostly internally managed and this is widely accepted as best practice.

An internally managed Reit employs the managers and support staff running day-to-day operations. Management's remuneration is determined by a committee, usually headed by an independent director. Unitholders can endorse the appointment of directors. And the Reit saves on management, acquisition and divestment fees - paying only the salaries of the internalised management staff.

An externally managed Reit, on the other hand, outsources its management. Remuneration is usually dependent on distribution per unit growth or net property income.

Some observers say outsourcing creates potential for misaligned interests between the manager and unitholders. In Singapore, most Reit managers are wholly or majority owned by Reit sponsors. This would mean Reit managers' interests may be aligned instead with the sponsors'. Also, paying external managers fees for deals incentivises them to buy and sell assets.

A 2017 EY report observed that annual overheads for internally managed Reits were typically less than 50 basis points (bps) of total assets. Management fees on externally managed vehicles were more than 100bps of net asset value, excluding sales commissions and other fees.

But externally managed Reits were said to benefit from resources, talent and influence from the parent platform, which can be a differentiating factor for new and smaller Reits.

The report also said that while internally managed Reits generated higher returns from 2014 to 2016 in the US, externally managed Reits elsewhere have performed well - with particularly strong returns in Canada, the United Kingdom and Hong Kong.

In response to the debate on the two structures, externally managed Reits - including those in Singapore - have responded by changing their fee structures, EY said.

EY also suggested doing away with rewards for what is "routine", such as acquisitions from sponsors.

The Croesus example

Back in 2016, CRT had internalised its trustee-manager to solve a persistent undervaluation problem that had made it difficult for the trust to make yield-accretive acquisitions.

The experience of CRT's unitholders would suggest that some of the common objections to internalised Reits are surmountable.

Jeremy Yong, who had been a member of CRT's internalised management, said the trust had engaged human resource professionals to help it formulate an incentive programme aligning management's interests with unitholders'.

Speaking to The Business Times recently, Mr Yong said this was in response to unitholder concerns that the internal manager would not be incentivised to make accretive acquisitions for the trust without acquisition fees.

CRT also continued to be supported by its sponsor and strategic partners Croesus Group, Daiwa House and Marubeni. The trust's original rights of first refusal over various properties were renewed. On top of this, however, the manager sourced for joint venture opportunities to secure a growth strategy for the Reit.

The concept of a sponsored Reit is "perfectly compatible" with an internally managed one, said Prof Lecomte of Henley Business School.

He added: "The danger is to apply an ideological perspective to issues pertaining to market structure which are essentially contextual."

The applicable context for Sabana Reit is that the internalisation has been proposed by dissenting unitholders. An amiable relationship between the current sponsor and any new manager seems unlikely.

Making a case

ESR can be expected to vote against any internalisation proposal on the table, having gone to great lengths to gain control of Sabana Reit's manager.

At the same time, the existing manager of Sabana Reit has not proven very successful at delivering returns for unitholders.

It will fall upon both the existing and proposed managers to make a case for how each will improve performance.

Singapore Press Holdings Limited

Hello all, newbie here - please don't scold.

Moving some of my money to S-REITS recently, so far have bought in CRCT at 1.21 and Ascendas at 2.94 based on the limited reading and comparison I have made.

Would like to know which are the generally high quality S-REITS that everyone go for? Still new to the scene, so would appreciate if there are recent issues/news that I should be reading up upon or be cautious for certain REITS.

I'm watching Keppel DC and Parkway Life atm.
Is there any hospitality REITS also that are worth watching?

Thank you

Thank you so much TOS for the heads-up!

i have

IREIT Global - i like their German tenants

Cromwell - BIG diversified.

ELITE - UK government tenant

Utd Hampshire - grocery tenants. Covid proof so far

Companies & Markets

Rising ESG focus sees launch of another green Reit index

17 December 2020
Business Times Singapore
STBT
English
© 2020 Singapore Press Holdings Limited
Of 49 Asia-Pac constituents picked for latest one, 8 are S-Reits; Japan-listed Reits comprise half

Singapore

THE label of being a "green" real estate investment trust (Reit) will become a more coveted one, as investors integrate more sustainability factors into their investment strategies and mandates.

This has also led more index providers to launch indices that help investors identify Reits that fulfil ESG (environmental, social and corporate governance) factors.

The latest here is the 49-constituent Solactive CarbonCare Asia Green Reit index, with names picked out of 200 Reits in Asia-Pacific.

Of these, eight are Singapore Reits (S-Reits): CapitaLand Integrated Commercial Trust, Frasers Centrepoint Trust, Keppel Reit, Manulife US Reit, Mapletree Commercial Trust, Mapletree North Asia Commercial Trust, SPH Reit and Suntec Reit.

Index authors from CarbonCare and Solactive believe that the index gives constituent Reits a leg up as governments around the world are expected to tighten up on environmental and sustainability standards.

Wee Boon Siong, director at Carbon Care Asia (Singapore), said: "Our belief is that in the long run, green Reits, bonds and stocks will have a higher rate of survival because more people will go towards responsible investing, and regulation will impose more restrictions to encourage sustainability. Because of that, not-so-green Reits will probably have to spend more to boost their portfolios at that time, while those that are already green will have a competitive advantage."

The Reits were assessed based on their carbon emission targets and their portfolios' green building certification, subject to certain market capitalisation and liquidity criteria. Japan-listed Reits ended up comprising half the constituents.

Lan Xing, associate director (sustainable finance) at Carbon Care Asia (Hong Kong), noted that S-Reits already have a high proportion of green buildings in their portfolios, but lag other jurisdictions in terms of their carbon-reduction targets. Australia, for instance, has a net zero emission target that is more aligned with international standards.

Most of the S-Reits in the index tend to be the larger Reits, which begs the question of whether size and maturity, either of the Reit or sponsor or both, do help these Reits in their green efforts. Also, do green Reits do better because they are bigger Reits, rather than because they are green?

To this, Ms Lan said that there is a positive correlation between greenness and performance. In Europe and the United States, green buildings actually enjoy rent premiums because some multinational companies can only be located in green buildings. "Maybe this statistic is not so obvious in Asia because the tenants here are not so conscious about whether their office is green or not," she noted.

Mr Wee added that "big Reits turning green because they have the resources" may be the case at the beginning, but smaller Reits and asset managers are following in their footsteps, after noticing how this helps to attract institutional interest. "Maybe they are even more aggressive because they see that more investors do look at sustainability scores."

In the last few years, S&P Dow Jones Indices and and the FTSE EPRA Nareit Green Indexes have launched their own green Reit indices, but mostly with a global coverage. In July this year, Nikkei Inc also launched its Nikkei ESG-Reit Index which covers only Japan-listed Reits. This makes the Solactive CarbonCare Asia Green Reit index's Asia-Pacific coverage a unique one.

The usefulness of an index lies in its adoption as a reference by providers of exchange-traded funds, asset managers, and other entities, which Solactive and CarbonCare said they are working on right now.

Singapore Press Holdings Limited

Which platform i can buy sreit? Those account can open online. Thank you

Sometime in Aug/Sep, you said "let's see what happen in Nov 2020". Now "let's see June 2021". You will repeat the same thing in your investment life 

In April/May you said you didn't buy much, still waiting. Until now still waiting.....

Exactly the purpose of this tracking of your "portfolio" - wait vs plunge. I wonder what will happen in 2 year milestone, 3 years, 5 years. It is a very good life depiction of an overly conservative risk aversed stock investor. Time will tell in your case which is better.
You have wasted an opportunity of a life time back in March.
On a side note, it's very kind of you to share your investment thoughts. Actually there is no right or wrong in investment strategy. Do whatever an investor feels comfortable. The golden rule always prevails - low risk low return, high risk high return. Apparently you are an extremely cautious investor, so your assets are safe, but your growth is limited. It is a strategy nonetheless.

I am very curious what will happen to this portfolio in 5 years. Is it a runaway to the peak ? Or will it retreat back to the original cost ?