Sabana Shari'ah REIT

The market is doing the correct thing is re-pricing the stock however will the valuers re-price the total portfolio value by using this sale as a benchmark transaction?

Difficult to argue that is not an pure market transaction - willing buyer willing seller

Lower portfolio value would lead to loan convenant concerns

Thus is just the begining of the nightmare for sabana .
Many master leases were not renewed , properties with weak tenants . Poor quality of properties in poor locations.

If we total up the total div in 2015 one will realise the capital loss is much more significant. Another reit with such scale of capital losses is Suntec Reit.

(26-12-2015, 08:23 PM)ghchua Wrote: Hi Singapore_guru,

The market had already given the REIT a 30% discount from NTA to reflect the risk that you have mentioned. Whether the discount is good enough is up to the market to decide and what the management's actions will be going forward.

In terms of valuations, the property in question had already been valued at S$36.8 million in 23 November 2015 and sold for S$38.0 million. The loss is based on its book value of S$44.9 million as at 31 December 2014.

Therefore, I do think that if you are taking the valuations based on 31 December 2014 as compared to now, then of course the value of the entire portfolio might be lower.

hi ghchua,
Although Mgt has managed to sell above Mr Market's valuation, creating value for shareholders, I think the quality of Mgt (what Singapore_guru is alluding) should still be largely assessed independently from the actions of Mr Market...To create further value, maybe they should follow the path of Macquarie International Infrastructure Fund (MIIF)? (But of course, MIIF only liquidated because of applied pressure coming from a new substantial shareholder previously)

Dear all,

To answer cfa question on master leases, 2015 is the year whereby they have most of the master leases (i.e. 11) up for renewal. 3 had been renewed for a short period (i.e. only one year+option for another one year renewal), 3 had been renewed for a longer period of 2 or more years, 3 had been converted into multi-tenanted, 1 had been undergoing divestment and another one vacant.

For 2016, total lease expiry as percentage of total portfolio NLA is approximately 32.3%, down from approximately 50.1% in year 2015. Though still bad, but not as bad as 2015.

weijian, as for the quality of management, it should be assessed together with the valuation of Mr Market. The market had given the REIT a discount of 30% from its NTA, which reflects the confidence (or rather, lack of) the market gave to the management. Whether the discount is good enough will depend on the management's actions going forward. I think what we are mostly looking at here are the current situation but it will be better to look at their actions going forward to see whether the REIT is attractive.

For me, I think they have done a few good things for the past 2 years. Firstly, they acquired a good asset in 10 Changi South Street 2 at the end of last year with a 10 year sale and leaseback deal. This locked in a longer master lease which offset some of the expiry of the master leases in their portfolio. The asset is also accessible from Pan Island Expressway and East Coast Parkway and within a walking distance from Expo MRT station. They also re-financed some of their debt before expiry and also divest some underperforming assets.

Granted, what they have done currently might not be enough to mitigate the misadventures previously. But at least they have taken some action to offset some of those mistakes in the past. Liquidation might be good for those who bought the REIT at a low but painful for those who bought the REIT at or above NTA. I think by showing the market that they are taking active actions to correct past mistakes and managing the portfolio with the aim of delivering stable DPU return in the long term would be a better solution for all unitholders.

hi ghchua,

Thanks for your insightful reply, as always.
Let's say that the 'true' quality of Mgt is somehow quantified at 15% discount to NAV (based on how much it sells its asset on an 'at arms' length' basis). Whether Mr Market values it at 50% discount to NAV or 30% premium to NAV, does not change the quality of Mgt, although it does reflect the quality of Mgt...This is what I was trying to say. Of course, a thoughtful investor judges the attractiveness of the asset based on quality and price, ie. unless it is a outright fraud where no margin of safety is ever enough, no bad asset will stay non-attractive regardless of price (and vice versa where no good asset will stay attractive regardless of price), so actually we are on the same page.

I think liquidation will make sense when there is extended period of low valuation (>2 years?), while Mgt is consistently able to divest above Mr Market's valuation. But generally what make sense (in theory) does not happen in Markets (in practice) because that would mean killing the goose that lays eggs. When Mgt claims that their share price is undervalued, they should demonstrate it by walking the talk to divest 'fair value' assets on their balance sheet above Mr Market's valuation, rather than constant chirping about the undervaluation.

I do find it weird that Mgt's actions should take into consideration of those who bought 'high'. This reminds me of the recent absurd recommendation from SIAS to increase the offer price in consideration of IPO subscribers who became 'long term' shareholders.

(27-12-2015, 10:30 PM)weijian Wrote: I do find it weird that Mgt's actions should take into consideration of those who bought 'high'. This reminds me of the recent absurd recommendation from SIAS to increase the offer price in consideration of IPO subscribers who became 'long term' shareholders.

This is stupid. Will get backfire by saying this. SIAS is doing a poor job. 

Is a discount good enough? Let not forget that valuation of property is value at the max it can be. Just because it is a REIT doesnt mean one should pay a higher price.

I think u r trying to say that valuation px is a max reference px for both buyer and seller. Because technically speaking, an interested buyer can always pay above the valuation px. This is especially so if many buyers are eyeing the same property. 

Value of the property lies in the eyes of the beholder. 

Fernando Alonso, a double World Champion, made his debut in F1 in year 2001 with Minardi, scoring zero championship point for the whole year. What I am saying is a competent driver is useless with a lousy car.

The latest valuations of their 23 properties carried out on 31 Dec 2015 put their portfolio at S$1.1432bn. The press release would be better if they have had the older valuations beside the new one.

Taking the Changi South Street 2 property out, that is a decline of S$115.8m for the 22 other properties. Meanwhile, they are waiting to divest 2 properties valued at S$53m. DPU has been cut. Down the slope they go.