PricewaterhouseCoopers LLP, the Independent Auditor of Saizen Real Estate Investment Trust, has included an emphasis of matter in relation to the loan of YK Shintoku on the financial statements of Saizen REIT for the financial year ended 30 June 2010.

As at 30 June 2010, Saizen Real Estate Investment Trust has interest-bearing borrowings of JPY 7.8 billion ($122 million), which are due for repayment within 12 months from the balance sheet date, of which the group expects to repay JPY 0.7 billion with cash generated from operating activities. The balance JPY 7.1 billion relates to the borrowings of YK Shintoku. In this respect, the group is currently in negotiations with financial institutions to refinance this loan, and has also implemented a plan to divest some properties of YK Shintoku to reduce the borrowing amount.

In the loan agreement of YK Shintoku, PwC says the lender has the right to take control of YK Shintoku in the event of default. As such, YK Shintoku’s ability to continue as a going concern is dependent on the successful outcome of these refinancing negotiations with financial institutions and support from the lender by not seeking foreclosure of its assets within 12 months from the balance sheet date.

If YK Shintoku is unable to continue in operational existence for the foreseeable future, adjustments would have to be made to reflect the situation that its assets may need to be realised other than in the normal course of business and at amounts which could differ significantly from the amounts stated in the balance sheet. In addition, YK Shintoku may have to provide for further liabilities which may arise.

PwC adds that the group’s financial statements do not include the adjustments that would result if YK Shintoku was unable to continue as a going concern.