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Sabana REIT: Internalization pains.

Monday, March 11, 2024

When Sabana REIT's unit holders voted for the internalization of the REIT's manager, some readers asked me what I thought of it.

For the record, I didn't vote for the internalization.

I sat on the fence.

From past experience with Croesus Retail Trust, I guessed that internalizing the manager would be a costly exercise.

I said as much here in reply to readers' comments.

However, if successfully executed, it would result in significant cost savings and greater alignment of interests.

The exercise was smooth sailing in the case of Croesus Retail Trust although it was pretty costly.

That was partially because the REIT's sponsor suggested the internalization themselves.

It was not a demand made by activist investors.

It was suggested partly to unlock value and to address the persistent underperformance of the Trust's unit price.

Later on, Croesus Retail Trust was sold to an institutional investor at a premium to valuation.

I had mixed feelings about the sale.

I lost a reliable passive income generator but I did enjoy an attractive return.

Whether the internalization of the manager played a part or not in the sale of Croesus Retail Trust to the institutional investor is anyone's guess.

Anyway, looking at Sabana REIT, from what has transpired so far and at the recent EGM, it is obvious to me that we are not seeing another Croesus Retail Trust here.

To me, the entire process in Sabana REIT's instance seems to be far more challenging.

It is going to take way longer and cost way more than expected.

Regular readers know that I increased my investment in Sabana REIT significantly in late 2020 and early 2021 after the lowball offer to buy the REIT was rejected.

Sabana REIT was and still is pretty undervalued.

However, I don't like investing in businesses which keep me guessing.

Peace of mind is priceless.

My investment in Sabana REIT has paid me attractive dividends in the last few years.

However, with so much uncertainty now, I have decided to reduce my investment in the REIT significantly while I am still in the money.

Taking back my capital, I will have a stronger war chest to take advantage of other investment opportunities.

So, with this decision, Sabana REIT is no longer one of my largest investments.

I still retain a legacy position from donkey years ago which is free of cost.


SgFire said...

Hi Ak, can you talk to yourself on ascott? Recent tourism and concert boom is benefitting hospitality industry.

AK71 said...

Hi SgFire,

There is very little incentive for me to add to my investments in business trusts and REITs for as long as DBS, OCBC and UOB are able to offer yields upwards of 6% p.a.

This is especially when the banks have better looking numbers overall.

Still, I am willing to hold on to investments made in the past as long as they are still able to pay me and do not give me headaches. ;p

YIELD EXPANSION! Time to invest in REITs? What is my PLAN?

SgFire said...

The environment has turned complex for nowadays for rental business

AK71 said...

Hi SgFire,

It is a minefield.

Have to tread carefully. ;)

blog test said...

Hi AK,

We have been followers of your blog for a long time! We really like your articles and appreciate your views and share alot of your views on some of the SGX companies/REITs.

Thank you for you article on Sabana REIT.

Quarz is part of Sabana Growth Internalization Committee which is supporting the Internalization process of Sabana REIT.

We would like to ask if we can meet/kopi/chat at your convenience on our views of the Internalization process, the remaining items to be done, and why it is critically important that Internalization succeeds for the entire REIT sector and all REIT investors.

If Internalization does not succeed, perhaps all unitholders should rethink their investment in this sector given the negative precedence.

Many thanks again, we really appreciate your great work and have a great week ahead.

Thank you.

Kind regards,


AK71 said...

Hi Havard,

Thank you for reaching out to me.

I want to say first and foremost that I believe in what folks like you are doing for Sabana REIT and why it is a step in the right direction not just for the REIT but for the whole sector.

Having internal managers for REITs makes a lot of sense.

In the case of Croesus Retail Trust many years ago, we saw cost savings, greater alignment of interests and unlocking of value.

As for me, I am just a simple retail investor who wants to enjoy a peaceful retirement. :)

So, thank you but I am declining your kind invitation to meet up.

When invited, I didn't take part in the "SAVING SABANA REIT" movement many years ago either.

I go for low hanging fruits.

I don't like climbing trees which is an awful lot of work.

Just me being lazy, as usual. ;p

I hope the internalization succeeds, for sure.

With best wishes,

AK71 said...

Hi Havard,

My memory is so bad.

It was "REMOVE SABANA REIT MANAGER" movement in 2017.

"SAVING SABANA REIT" was something you did when ESR made that low ball offer. ;p

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