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As Sabana REIT's 2HFY2023 DPU tumbles, Trustee warns of more costs

Goola Warden
Goola Warden • 3 min read
As Sabana REIT's 2HFY2023 DPU tumbles, Trustee warns of more costs
Costs related to internalisation cause Sabana REIT's DPU to fall 21% y-o-y in 2H2023; Trustee warns of more costs
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On Jan 23, Sabana Industrial REIT's manager announced that the REIT had incurred costs of $1.37 million for the period up to the requisition of the EGM by Quarz Capital Asia, held on Aug 7.

An additional $3.27 million of expenses were incurred, relating to the internalisation process based on the resolutions passed at the EGM. Sabana REIT also had a $2 million impairment.

The retention of 10% of distributable income, coupled with one off impairment of receivables of $2 million caused total distributions to decline by 7.7% to $30.5 million. As a result, distributions per unit (DPU) declined by 21.2% in 2HFY2023 to 1.15 cents.

Together with 1HFY2023 DPU of 1.61 cents, FY2023's DPU declined by 9.5% to 2.76 cents.

Income available for distribution per unit without the 10% retention would have been 3.05 cents. The REIT retained 10% from the 3.05 cents, so as to be able to preserve some liquidity in funding the internalisation process. 

HSBC Institutional Trust Services (HSBC Trustee), Sabana REIT's trustee, says additional expenses are likely to be incurred as work for the internalisation continues. Further retention of distributable income may be required for FY2024 and FY2025 in view of the ongoing internalisation process, the manager says. 

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HSBC Trustee says costs have been incurred and will be incurred to carry out the following: (a) financial analysis of Sabana Industrial REIT’s operations and costs; (b) ensuring continued compliance with relevant laws and obligations; (c) ongoing engagement with regulators; (d) considering the impact of the internalisation from a Singapore tax perspective; (e) seeking to secure the necessary regulatory licenses for the new internal manager to operate; (f) an assessment of the appropriate legal structure of the new internal manager; (g) identifying and appointing qualified employees and directors of the internal manager and the handling of various staffing requirements; and (h) assessing funding requirements for the establishment of new internal manager and the implementation of the internalisation and for the new internal manager to commence operations. 

The Trustee also notes that additional time and resources may be needed if it has to address the appropriateness and actionability of the resolutions put forth by the requisitioning unitholders including Quarz Capital Asia, in the requisition notice dated Jan 10 to convene a separate EGM.

The Jan 10 requisition notice has 12 resolutions. Of these resolutions 2 and 3 pertain to the REIT acquiring the existing REIT manager which requires a change in the trust deed. Resolutions 6, 7 and 8 appear to be most likely part of the Order 32 hearing.

See also: Mapletree Logistics Trust announces new CEO of the manager, seen by DBS to 'bring continuity'

The trustee has stated that it and its legal advisers, Rajah & Tann, "are in communications with the Monetary Authority of Singapore and Singapore Exchange S68 -

Regulation (SGX RegCo) on various regulatory matters pertaining to the internalisation process. This includes seeking the necessary regulatory approvals from the MAS as well as sharing updates on the progress of the internalisation process".

Hence, resolution 12 appears redundant. Surely for resolution 11, the Trustee is under no obligation to reveal private conversations, messages or emails, unless by court order.  

HSBC Trustee says following the submission of the Trustee’s Order 32 Application to the High Court of Singapore, the respondent to the Order 21 Application which is Quarz Capital Asia, indicated that it wishes to seek the production of documents.

The Court has directed that Quarz request the documents from the Trustee, with a subsequent case conference to be held on Feb 20, where further directions for the conduct of the Order 32 Application will be provided.  

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