Sabana Reit manager responds to questions on valuation of acquisition

Singapore

IN another turn of the drama unfolding in Singapore's real estate investment trust (Reit) space, the manager for Sabana Shari'ah Compliant Industrial Reit (Sabana Reit) said the book value of a property the Reit is acquiring from its sponsor, Vibrant Group, is not relevant for the current acquisition.

The property at 47 Changi South Ave 2 was acquired by Vibrant Group in Mar 2011 for S$10.9 million and will be acquired by the Reit at S$23 million.

The latter figure had been arrived at by three valuation houses: Colliers, Knight Frank and Savills. A unitholder, Jerry Low had, in early February, filed a complaint to the Commercial Affairs Department (CAD) on his misgivings over the objectivity and independence of the valuation, BT earlier reported.

In an exchange filing late on Friday night in response to queries by the Singapore Exchange (SGX), Sabana Real Estate Investment Management said that Vibrant Group had purchased the property for its own use, and hence the S$10.9 million book value represents the original cost of acquisition without accumulated depreciation.

"As such, the book value is irrelevant and not the appropriate basis for comparison in the context of the current acquisition by Sabana Reit where the property valuation is arrived at based on the rental that the property will be generating over the next 10 years," it said.

The audit committee, after considering factors such as the rationale for the deal, its key terms, financial impact and valuation, is satisfied that the proposed acquisition is conducted on market terms, and supports the Reit manager's view that the deal is in the interest of the Reit, it added.

"In particular, the audit committee views the steady income stream which Sabana Reit will derive from the property over 10 years to be favourable during this current downward cycle in the industrial property market in Singapore."

The acquisition will be subject to unitholders' approval. If this is not obtained, the option fee paid by the Reit is refundable, said Sabana Real Estate Investment Management.

The Reit manager also revealed the members of the strategic review committee formed to determine options available for the Reit to enhance unitholder value.

They are: independent non-executive director Yong Kok Hoon, who will chair the committee, fellow independent director Steven Lim Kok Hoong, and non-executive director Henry Chua.

Besides reviewing options to improve the Reit's performance, it will source and consider proposals from potential strategic partners. Partners who can enhance its performance in terms of providing a pipeline of quality assets, improving its borrowing capacity and enhancing the capability of the management team will be shortlisted, it said.

This would cover areas of concern raised by unitholders, including concerns over significant revaluation losses and alignment of interests to the Reit manager's fees to unitholders interest, it added.

Asked by the SGX on the timeline for the completion of the review and the disclosure of its outcome to unitholders, Sabana Real Estate Investment Management said that the outcome will be "announced in due course".

The SGX also queried the Reit manager on whether the S$215 million it has incurred in property revaluation loss in the past three years is in line with general market conditions for industrial properties, as a percentage of acquisition costs.

In response, Sabana Real Estate Investment Management said the trend is in line with other industrial Reits which are similarly Singapore-focused and of similar size.

But it conceded that Sabana Reit exhibited higher revaluation losses as a percentage of investment property value. Eleven of its master leases expired in the 2015 financial year when market conditions were challenging, it said, which contributed to about two-thirds of the total revaluation loss Sabana Reit suffered that year.

READ MORE: Sabana Reit unitholders revolt: a tale of lost trust