Sabana Industrial REIT has incurred $5.55 million of internalisation costs year-to-date ended Sept 30, bringing its total expenses to $10.19 million so far. Unitholders were led to believe that internalising the REIT’s manager would cost around $5 million. The process was also expected to last some four to five months. The amount the REIT has spent on internalisation is more than twice the savings that Quarz Capital Asia claimed the REIT would make in management fees.
In a circular dated July 21, 2023 for an EGM on Aug 7, 2023, Quarz Capital Asia said: "The internalisation is projected to increase the dividend paid to unitholders by more than ~7.2% to $0.0327 per unit (~7.6% Dividend Yield) once the External Manager is removed. This increase would mainly come from cost savings of about $7.25 million of fees (of which $4.4 million are management fees, equivalent to ~14% of distributable income) and net profit which unitholders currently pay to the External Manager and its shareholder, ESR Group. The removal of the External Manager will also likely eliminate all other fees such as performance, acquisition, divestment, lease and property management fees which needs to be paid by unitholders to the External Manager."
Since that statement was made in the circular, in April this year, as part of its settlement with ESR Group, Quarz has clearly stated that its cost-saving figure was incorrect and erroneous: “‘cost savings to Sabana REIT of about $7.25 million of fees’ was incorrect, and an error”.
Nonetheless, Quarz's erroneous statements have cost Sabana REIT's unitholders a significant amount of money. Of the total amount spent in 2024, $1.15 million went to preparing and holding the extraordinary general meetings (EGMs) on March 8, May 24, Aug 6 and Oct 18, says the REIT manager in its 3QFY2024 and 9MFY2024 ended Sept 30 business update. Another $4.4 million was incurred while trying to implement the resolutions passed on Aug 6 to effect the internalisation of the REIT manager.
At its Oct 18 EGM, Sabana REIT’s unitholders voted in favour of the requisitionists’ proposed candidates for the internal manager. The candidates are: Lim Hock Chuan, Bhavik Umesh Doshi, Konrad Duttwiler, Jan Frederic Moermann, Saha Anshuman Manabendranath and Havard Chi. At the same time, At the same time, the trustee’s proposed candidates, Dr Chew Tuan Chiong, Chun Ming Jimmy Chan and Sandip Talukdar were rejected by the unitholders.
As at Sept 30, the REIT reported total portfolio occupancy of 84.9%, down from 91.8% as at Sept 30, 2023. Its weighted average lease expiry (WALE) as at the same period stood at 2.6 years, down from 3.1 years last year.
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Rental revision stood at a positive 9.7% as at Sept 30, but down from the 16.8% reversion as at Sept 30, 2023. Some 313,953 sq ft of new leases were signed while 15,974 sq ft leases were renewed this year, compared to 111,440 sq ft of new leases signed as at Sept 30, 2023, and 212,735 sq ft of new leases renewed last year.
Aggregate leverage increased to 37.0%, from 33.8% last year. Interest coverage ratio as at Sept 30 stood at 3.2 times, compared to 3.4 times as at Sept 30, 2023.
Despite the REIT’s strong performance at the beginning of the year, Donald Han, CEO of the REIT manager, explained that the milestones were “hampered” by two repossessions in March and June this year of two master tenanted properties.
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“Both ex-tenants of these properties are now in voluntary liquidation, for which we are proactively managing to protect the interest of the REIT,” he says.
“To reduce concentration risks of potential non-performance of master tenants, we have evolved our leasing strategy from that of master tenancy to an anchor tenancy focus,” he adds. “To this end, we have filled up approximately 74% of the net lettable area at 33, 33A & 35 Penjuru Lane with two anchor tenants.”
The REIT manager is also carrying out property reconfiguration initiative at 30 & 32 Tuas Avenue 8 to allow maximum leasing flexibility from early next year. The REIT manager also signed its first anchor tenant for Sabana@1TA4; the tenant will occupy 64% of the property’s total lettable area.
Units in Sabana REIT closed at 38.5 cents on Oct 17 before the REIT manager called for a trading halt on the morning of Oct 18.
