Sabana Industrial REIT’s manager, Sabana Real Estate Investment Management (SREIM), announced on July 19, that its independent external auditors, Ernst & Young, has included an emphasis of matter in respect of a material uncertainty that may cast significant doubt on Sabana REIT’s ability to continue as a going concern depending on the outcome of an extraordinary general meeting requisitioned by Quarz Capital Asia. The EGM will be held at 10 am on Aug 7,
The Requisition is proposing, among others, a resolution that SREIM be removed as the manager of Sabana REIT “as soon as practicable should this resolution be passed”.
Material uncertainty arises because of the potential adverse consequences to the financial position of the REIT from the requisition.
Under Sabana REIT’s existing financing arrangements with various lenders, the removal of SREIM as manager of Sabana REIT would trigger the removal of manager clause that constitutes a review event. “Such review event, if triggered, may result in mandatory prepayment by Sabana Industrial REIT of its outstanding loans and interest if no satisfactory agreement is reached with the lenders, within a period of not more than 30 days or such longer period as the lenders may agree,” the July 19 announcement states.
The manager had written to the lenders to seek a waiver from the review event. “The lenders have replied that they are unable to grant the relevant waivers at the current juncture,” the announcement says.
On July 15, Sabana REIT’s trustee, HSBC Institutional Trust Services had its draft letter issued on SGXnet where it said that if the resolutions in the EGM passed, the process of internalisation could take “at least 12 months”. Fees, costs and expenses of the various advisers and lawyers would be passed on to the REIT.
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As a matter of record, Croesus Retail Trust’s internalisation process cost its unitholders $50 million. Elsewhere, the cost of the REIT trustee overseeing the REIT, including identifying a new manager, and restructuring the debt including liquidation is believed to have run into millions.
Quarz Capital Asia has not estimated the impact on Sabana REIT’s DPU in the event the internalisation process runs into millions. For instance, a cost of $10 million for internalisation would have a 28% impact on the amount available for distribution. In 1H2023, Sabana REIT will be distributing $17.82 million to its unitholders.
HSBC trustee says it cannot estimate the time taken nor the cost in fees and expenses, that it will be charging to the REIT.
