A governance test for UOA-REIT

WHEN UOA Real Estate Investment Trust (REIT) adjourned its unitholders’ meeting on Dec 23 without offering any explanation, it did more than delay a vote.

It created a vacuum, one that sits uncomfortably with investors probably already uneasy about the process and precedent.

This was not a routine housekeeping meeting. Unitholders were being asked to approve a RM200mil related-party acquisition from sponsor UOA Development Bhd, alongside the establishment of an income distribution reinvestment plan.

Under the acquisition, UOA Development is transferring three properties in UOA Business Park near Subang Jaya to UOA-REIT for RM110.5mil cash for the two towers and RM89.5mil via new UOA-REIT units at 83 sen each.

The deal is deemed a related-party deal involving interested directors of UOA Development and major shareholders Kong Chong Soon @ Chi Suim and Kong Pak Lim.

In such situations, silence, whether intended or not, invites speculation.

Was there resistance from minority unitholders on the floor? Were questions raised about the independent adviser’s valuation assumptions despite it recommending non-interested unitholders to “vote in favour” of the deal, which is deemed “fair and reasonable” and “not detrimental” to them?

Or did the board sense that approval might not pass comfortably without further explanation?

By not stating reasons, the REIT has allowed the narrative to run ahead of it.

For UOA Development, the transaction is clearly beneficial: a RM35.8mil disposal gain, debt reduction and capital recycled into future development.

For UOA-REIT unitholders, dilution risk is immediate, while distribution accretion is less certain and gearing increased.

According to the independent advisor, UOA-REIT’s net asset value will be diluted to RM1.37 from RM1.46 upon completion of the acquisitions due to increase in number of units pursuant to the issuance of new consideration units.

As at the same date, the proforma gearing ratio of UOA-REIT will increase from 40.82% to 42.31% upon completion of the deal whereby RM110.50mil will be fully funded by bank borrowing.

Seen in that light, the adjournment looks less procedural and more tactical.

For now, until there is greater clarity, the adjournment will be read for what it signals, not what it says: that confidence, not timing, may be the real issue.