Sabana Shari'ah REIT

Here's what i found.

"A master lease is a lease that primary controls subsequent leases and may cover more property than the subsequent leases. This type of lease also contains the terms and conditions for the ongoing lease that and identifies the types of properties that have been subleased. A master lease usually yields quite an amount of savings because you have the grounds for negotiating while subleasing."

(17-10-2013, 11:29 PM)corydorus Wrote: Here's what i found.

"A master lease is a lease that primary controls subsequent leases and may cover more property than the subsequent leases. This type of lease also contains the terms and conditions for the ongoing lease that and identifies the types of properties that have been subleased. A master lease usually yields quite an amount of savings because you have the grounds for negotiating while subleasing."

Yes that is an appropriate definition but not in this case

My view is simply based on experience in the market, Sabana acquisition prices were exceptionally high at the time and in order to achieve an 8%+ offering, the leaseback rents were required to be equally high.

Now that was ok for the vendor or future leaseback tenant as their high rental liability was only for 3 years - the shorter the better as far as CDL & others were concerned

The challenge now is for the Management to maintain or exceed the previous income levels but deal with efficiency loss, vacancy, Repairs & maintenance, property tax, land rent, subletting rules etc etc for each asset that converts to a Multiple Tenant property

With the exception of the A-grade REITs, the majority of properties have seen falls in Net Income and not increases like the analysts are forecasting...however portfolio income growth is still being observed solely from acquisitions only, which now is ever increasing difficult due to the rising market and lack of stock

a continuation of the high price high rent short lease game is not sustainable - but if the B-grade REITs can't buy they will go backwards

It's going to be interesting watching it all unfold

Below is what I posted on my blog, I am vested and biased, and will look for good points... read at your own peril

---------

Sabana’s has just added a few items that will displeased investors.

1) QoQ distribution fall

2) Only 1 master lease to be renewed. Are there is no news which of the five properties are renewed.

My thoughts:

1) I still believe the 233058sft of NLA freed up are existing space.

When the Reit IPO, the NLA is 2636560 sq ft, but sub-tenants increased from 92 to 99 in 2 quarters. Where does the 7 tenants get the space?

When Sabana went on acquisitions spree in 2011, the 5 new buildings added 30 sub tenants, and 1 quarter later, the number of sub-tenants further increased by 10 while the NLA stay constant at 3165643 sq ft. Where does the 17 tenants find the space?

1 master tenant will be renewed, and the NLA freed up is only reduced by 7000 square feet, when the smallest building has about 83K GFA.

Lastly, there is no fall in the number of sub-tenants when the figure on NLA freed up is proposed.

2) Lorong Chuan and 200 Pandan have the highest number of sub-tenants, 27 and 14 from IPO prospectus, but has most probably increased the number of sub-tenants, and these 2 buildings has no rental revision clause built into it. The master-tenant should be getting a good deal, why have they not renewed the master lease? There is only 2 possibilities. One: Sabana’s terms are too harsh, and the cost savings from reverting back to single tenant might make more sense. Two: They intend to move out after 25 Nov. If it is situation two, then impact on distribution will be significant, and it will also mean that Sabana’s management is downright dishonest. With only slightly more than 1 month to go before 25 November, Sabana would have gotten the news of non-renewal by their master tenant. No price will be low enough to justify such sneaky management style. But if its situation 1, then maybe we could see some rental revision going forward.

I would stay put with Sabana for the time being. I will need 1 more quarter to know if Sabana is really a rotten apple, or if it is a apple of lower quality, but still edible.

----------------------

My guess is that 2A kallang way is the building being renewed, it is a single tenant master lease, and the HQ for fong Tat group, which is also the "showroom" for motor parts, I doubt they will move unless left with no choice

ML gave the tenant greater bargaining power but less koyok-selling work for the landlord. Helpful for purpose build buildings (e.g hanger / cold storage / chemical thingy), but on a typical warehouse/factory space.

Don't rule out that businesses are moving to Malaysia Iskandar or China, part. Scaling down their SG operations to admin & finance office

i m unsure how far can the management productize their empty space - eg. doing an inexpensive AEI to convert the upper floors to smaller units for SME & offices ? Perhaps a large food court / canteen.

Erm, did Sabana offers property tours for their retail investors ?

It will be nice if we have insights on tenants feedback rather than guessing on the current situation.
Someone there must have read this thread ?

Also Master lease structure will need for margin for them to do it to be profitable. What's the net income margin looks like in this industry ?

(17-10-2013, 11:59 PM)Singapore_guru Wrote:

(17-10-2013, 11:29 PM)corydorus Wrote: Here's what i found.

"A master lease is a lease that primary controls subsequent leases and may cover more property than the subsequent leases. This type of lease also contains the terms and conditions for the ongoing lease that and identifies the types of properties that have been subleased. A master lease usually yields quite an amount of savings because you have the grounds for negotiating while subleasing."

Yes that is an appropriate definition but not in this case

My view is simply based on experience in the market, Sabana acquisition prices were exceptionally high at the time and in order to achieve an 8%+ offering, the leaseback rents were required to be equally high.

Now that was ok for the vendor or future leaseback tenant as their high rental liability was only for 3 years - the shorter the better as far as CDL & others were concerned

The challenge now is for the Management to maintain or exceed the previous income levels but deal with efficiency loss, vacancy, Repairs & maintenance, property tax, land rent, subletting rules etc etc for each asset that converts to a Multiple Tenant property

With the exception of the A-grade REITs, the majority of properties have seen falls in Net Income and not increases like the analysts are forecasting...however portfolio income growth is still being observed solely from acquisitions only, which now is ever increasing difficult due to the rising market and lack of stock

a continuation of the high price high rent short lease game is not sustainable - but if the B-grade REITs can't buy they will go backwards

It's going to be interesting watching it all unfold

Vendors prefer to sell to reits because manager always agree on high capital value in exchange for a short 3 years master lease.
Win win for both vendors and managers . The only loser is unit holders.

Anyone knows which master lease is to be renewed? And what the renewal rent rate?

By the way I noticed the DPU drops from 0.241 to 0.24 and now 0.238 despite higher gross and net incomes. I think the manager is probably expecting more bumpy roads ahead and started to take precaution actions to reduce the DPU slowly. Nevertheless, by assuming further 20% drop on DPU due to the rising interest cost and effect of termination of master leases, it is still giving 6.9% yield based on current price, which is not so bad.

---

(17-10-2013, 08:57 PM)ForeverAlone Wrote: over the past 3 months, they only brought it down from 7.3% to 6.6%!!!
this is a super big red flag, if after the next 2 months it expires and 5% of the area still not rent out

6.6% empty is consider quite good for me in view of they just converted 4 buildings (which is more than 40% of the total portfolio in revenue) to multi-tenanted. For comparison, AIMS about 4% empty, Mapletree approx 5% empty, Areit 6.4% vacant.

Quote:Advanced Distribution For Period From 1 July 2013 To 23 September 2013 In Sabana Shari'ah Compliant Industrial Real Estate Investment Trust

2.2c paid in 31 Oct 2013.

Took 5 weeks , since 23 Sept 13, last CD.

(17-10-2013, 08:57 PM)ForeverAlone Wrote: over the past 3 months, they only brought it down from 7.3% to 6.6%!!!
this is a super big red flag, if after the next 2 months it expires and 5% of the area still not rent out
How will DPU be affect?
how much drop? maybe about 5% drop in DPU? since you renting out 5% less of area right?

Yes, your perception is correct. I was hoping it would drop a little more, then leave more room for growth.

Say it drop 5%, + the remaining NLA for the new Chai Chee building, that adds up to the potential upside for growth.

At the current price $1.1, think it's an attractive price to go in?

Not attractive enough for me to want to buy.

(18-10-2013, 05:07 PM)xaley Wrote:

(17-10-2013, 08:57 PM)ForeverAlone Wrote: over the past 3 months, they only brought it down from 7.3% to 6.6%!!!
this is a super big red flag, if after the next 2 months it expires and 5% of the area still not rent out
How will DPU be affect?
how much drop? maybe about 5% drop in DPU? since you renting out 5% less of area right?

Yes, your perception is correct. I was hoping it would drop a little more, then leave more room for growth.

Say it drop 5%, + the remaining NLA for the new Chai Chee building, that adds up to the potential upside for growth.

At the current price $1.1, think it's an attractive price to go in?

Not attractive enough for me to want to buy.

Is 6.6% a lot? If looking at Ascendas' multi-tenanted buildings, the occupancy rate is only 83.9%. Isn't that worse?

http://infopub.sgx.com/FileOpen/AREIT_Su...eID=259856