Sabana Shari'ah REIT

[KopiKat]

6. RATIONALE FOR THE TRANSACTION
The Manager believes that the Transaction will bring the following benefits to holders of units in
Sabana REIT (“Unitholders”):
a. In line with Manager’s Strategy
The Transaction is in line with the Manager’s aim to invest in income-producing real estate and
real-estate related assets used for industrial purposes in Asia which provide attractive cash
flows, yield-accretion and capital growth opportunities so as to generate stable and growing
returns to Unitholders

This is like "hidden" within the overall Strategic Statement, but not explicitly mentioned in the benefits under a subsequent paragraph (where they talk about benefits in extending the average lease expiry), so I would want to see confirmation of this from IR regarding this fact.

According to the SGX Announcements for both proposed acquisitions, extracts,

7. METHOD OF FINANCING
The Manager intends to fund the Acquisition by debt.

That means there's a 99.99% chance it'll be yield accretive to DPU. If it isn't, the managers ought to be sacked immediately and perhaps to be reported to CAD for investigations !
The bigger concern (if you are a shareholder) is how much it adds to DPU as the Gearing is going to increase from 25.1% to 28.4% to 33.7%.

http://info.sgx.com/webcoranncatth.nsf/V...80050F85E/$file/SGX_announcement_2TTL.pdf

[jovialger]

6. RATIONALE FOR THE TRANSACTION
The Manager believes that the Transaction will bring the following benefits to holders of units in
Sabana REIT (“Unitholders”):
a. In line with Manager’s Strategy
The Transaction is in line with the Manager’s aim to invest in income-producing real estate and
real-estate related assets used for industrial purposes in Asia which provide attractive cash
flows, yield-accretion and capital growth opportunities so as to generate stable and growing
returns to Unitholders

This is like "hidden" within the overall Strategic Statement, but not explicitly mentioned in the benefits under a subsequent paragraph (where they talk about benefits in extending the average lease expiry), so I would want to see confirmation of this from IR regarding this fact.

According to the SGX Announcements for both proposed acquisitions, extracts,

7. METHOD OF FINANCING
The Manager intends to fund the Acquisition by debt.

That means there's a 99.99% chance it'll be yield accretive to DPU. If it isn't, the managers ought to be sacked immediately and perhaps to be reported to CAD for investigations !
The bigger concern (if you are a shareholder) is how much it adds to DPU as the Gearing is going to increase from 25.1% to 28.4% to 33.7%.

http://info.sgx.com/webcoranncatth.nsf/V...80050F85E/$file/SGX_announcement_2TTL.pdf

Using debt does not mean it's yield accretive, we need to look at the NET property income from these new assets (ie rental income vs the interest payments, other expenses etc), which would then give us the additional DPU, and then we use this to compute the distribution yield (based on share px). Having this new info, we then compare against our current yield (based on our individual purchase px) to determine whether this is yield accretive for each shareholder or not. No point taking 100% debt at 10% interest rate, that will not be yield accretive for sure!

Hmm, do I make any sense?

[Nick]

6. RATIONALE FOR THE TRANSACTION
The Manager believes that the Transaction will bring the following benefits to holders of units in
Sabana REIT (“Unitholders”):
a. In line with Manager’s Strategy
The Transaction is in line with the Manager’s aim to invest in income-producing real estate and
real-estate related assets used for industrial purposes in Asia which provide attractive cash
flows, yield-accretion and capital growth opportunities so as to generate stable and growing
returns to Unitholders

This is like "hidden" within the overall Strategic Statement, but not explicitly mentioned in the benefits under a subsequent paragraph (where they talk about benefits in extending the average lease expiry), so I would want to see confirmation of this from IR regarding this fact.

According to the SGX Announcements for both proposed acquisitions, extracts,

7. METHOD OF FINANCING
The Manager intends to fund the Acquisition by debt.

That means there's a 99.99% chance it'll be yield accretive to DPU. If it isn't, the managers ought to be sacked immediately and perhaps to be reported to CAD for investigations !
The bigger concern (if you are a shareholder) is how much it adds to DPU as the Gearing is going to increase from 25.1% to 28.4% to 33.7%.

http://info.sgx.com/webcoranncatth.nsf/V...80050F85E/$file/SGX_announcement_2TTL.pdf

Using debt does not mean it's yield accretive, we need to look at the NET property income from these new assets (ie rental income vs the interest payments, other expenses etc), which would then give us the additional DPU, and then we use this to compute the distribution yield (based on share px). Having this new info, we then compare against our current yield (based on our individual purchase px) to determine whether this is yield accretive for each shareholder or not. No point taking 100% debt at 10% interest rate, that will not be yield accretive for sure!

Hmm, do I make any sense?

It is 100% debt funded. I cannot imagine why it would be yield negative ? Debt cost around 4%. The Manager wouldn't buy the property yielding < 4% as it would be suicidal !

The key question is whether was it worth to have the increment in DPU considering the sharp rise in gearing ! That we will find out when they consolidate the results in 4Q 2011.

[Stocker]

I had emailed to Bobby Tay on these concerns and hope more will do the same. Cheers.

[jovialger]

6. RATIONALE FOR THE TRANSACTION
The Manager believes that the Transaction will bring the following benefits to holders of units in
Sabana REIT (“Unitholders”):
a. In line with Manager’s Strategy
The Transaction is in line with the Manager’s aim to invest in income-producing real estate and
real-estate related assets used for industrial purposes in Asia which provide attractive cash
flows, yield-accretion and capital growth opportunities so as to generate stable and growing
returns to Unitholders

This is like "hidden" within the overall Strategic Statement, but not explicitly mentioned in the benefits under a subsequent paragraph (where they talk about benefits in extending the average lease expiry), so I would want to see confirmation of this from IR regarding this fact.

According to the SGX Announcements for both proposed acquisitions, extracts,

7. METHOD OF FINANCING
The Manager intends to fund the Acquisition by debt.

That means there's a 99.99% chance it'll be yield accretive to DPU. If it isn't, the managers ought to be sacked immediately and perhaps to be reported to CAD for investigations !
The bigger concern (if you are a shareholder) is how much it adds to DPU as the Gearing is going to increase from 25.1% to 28.4% to 33.7%.

http://info.sgx.com/webcoranncatth.nsf/V...80050F85E/$file/SGX_announcement_2TTL.pdf

Using debt does not mean it's yield accretive, we need to look at the NET property income from these new assets (ie rental income vs the interest payments, other expenses etc), which would then give us the additional DPU, and then we use this to compute the distribution yield (based on share px). Having this new info, we then compare against our current yield (based on our individual purchase px) to determine whether this is yield accretive for each shareholder or not. No point taking 100% debt at 10% interest rate, that will not be yield accretive for sure!

Hmm, do I make any sense?

It is 100% debt funded. I cannot imagine why it would be yield negative ? Debt cost around 4%. The Manager wouldn't buy the property yielding < 4% as it would be suicidal !

The key question is whether was it worth to have the increment in DPU considering the sharp rise in gearing ! That we will find out when they consolidate the results in 4Q 2011.

Your key question is the same as whether it will be yield accretive or not. If the new properties offer 7% yield but existing yield is 8+%, then it is not yield accretive.

[yeokiwi]

even if it is 1% yield after interest cost, it is still yield accretive since the investor will get more dividend per share.maybe, the yield will increase from 8.9% to 9.0% for example?

[KopiKat]

Your key question is the same as whether it will be yield accretive or not. If the new properties offer 7% yield but existing yield is 8+%, then it is not yield accretive.

Let's say you have $100k of stocks yielding 8% ie. you get $8k of dividends a year.

Now, you borrow another $100k from the bank @ 4% interest and you use that to buy $100k of stocks at 7% yield. What do you earn from this?? 7% - 4% = 3% ie $3k. Now, you are getting a total of $11k and your own Capital is still $100k (the extra $100k is borrowed funds and you are 50% geared) ie. 11% return on your own funds.

Yes, I think this is the fundamental concept of Financial (or Capital?) Management. Even though the new $100k of stocks is giving you only 7% dividend yield (1% less than your original portfolio), you are actually earning an extra $3k using debts.

So, that's my definition of Yield Accretive and likely that of Nick and yeokiwi. Now, perhaps you understand why the REIT Manager ought to be sacked if they are funding assets purchase with debts and it's not Yield Accretive

Note : The Quarter following the successful acquisition will likely see a drop in DPU due to the extra one time expenses (acquisition fees, lawyer fees, incentive fess,... etc.) involved in the acquisitions and you'll only see any DPU accretion in the next Quarter.

[jovialger]

Your key question is the same as whether it will be yield accretive or not. If the new properties offer 7% yield but existing yield is 8+%, then it is not yield accretive.

Let's say you have $100k of stocks yielding 8% ie. you get $8k of dividends a year.

Now, you borrow another $100k from the bank @ 4% interest and you use that to buy $100k of stocks at 7% yield. What do you earn from this?? 7% - 4% = 3% ie $3k. Now, you are getting a total of $11k and your own Capital is still $100k (the extra $100k is borrowed funds and you are 50% geared) ie. 11% return on your own funds.

Yes, I think this is the fundamental concept of Financial (or Capital?) Management. Even though the new $100k of stocks is giving you only 7% dividend yield (1% less than your original portfolio), you are actually earning an extra $3k using debts.

So, that's my definition of Yield Accretive and likely that of Nick and yeokiwi. Now, perhaps you understand why the REIT Manager ought to be sacked if they are funding assets purchase with debts and it's not Yield Accretive

Note : The Quarter following the successful acquisition will likely see a drop in DPU due to the extra one time expenses (acquisition fees, lawyer fees, incentive fess,... etc.) involved in the acquisitions and you'll only see any DPU accretion in the next Quarter.

Hi there, the proper definition of yield accretion is comparing the new net property income (NPI) yield on cost against the existing NPI yield. If it is higher, then it is accretive.

It's the same concept as launching a new product giving a lower OP margin, but overall OP will still increase. However, the new overall OPM has fallen, resulting in lower ROE. So it's a matter of whether you are bothered with a lower "margin" or not, or don't care as long as there is higher OP and Dividend.

You are explaining about concept of leveraging and giving a higher ROI which I totally understand, but that is not yield accretion definition.

[yeokiwi]

http://www.investopedia.com/terms/a/accr...z1XsJBhzJo

What Does Accretive Mean?
The process of accretion, which is the growth or increase by gradual addition, in finance and general nomenclature. An acquisition is considered accretive if it adds to earnings per share.

Investopedia Says
Investopedia explains Accretive
In corporate finance, accretive acquisitions of assets or businesses will add more value than the cost of the acquisition, either immediately or over time. In fixed-income investments, the term refers to the increase in value attributable to interest accrued but not paid (discounted bonds, for example, earn interest through accretion until maturity).


Well, my understanding come from the above definition.
Maybe yield+accretive will be another explanation and there is really no proper definition of "yield accretive" on internet.

[jovialger]

Haa. It's interesting we come to the same website with the same definition and we both understand ourselves to be right! I finally understand we are just talking about different concepts yesterday! You are talking about accretion and adding to EPS (possible from proper use of debt) while I am taking about yield accretion, what is the new net property yield. There is a subtle difference indeed.

A simple accretion is of course good for unit holders. I want that too! However I am using yield accretion as a measure of manager quality. If they continue to take on Yield non accretive properties, I will be concerned. Anyway, only IR knows whether yield accretive or not, so I encourage more people to just shoot Bobby an email or even the Philiips analyst an email as he has better access to IR. Thank you!