Sabana Shari'ah REIT

[HitandRun]

Greenrookie san

Cost of building is $68.2 million or $208 on a per sq ft basis. This pricing is very cheap lah, especially for a purpose built building for AMD (semiconductor industry). In fact, one would struggle to find an equivalent property at this kind of pricing even in Woodlands.

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Rent for former AMD Building at Chai Chee

P.S. I don't think AMD will be paying $2 per sq ft, at least not yet. However, this is the potential of the property....

[valueinvestor]

The institutions will unload and take the instant profit as soon as they can, wait for them to sell first and unit price should be weaken.

[Greenrookie]

Hit and run San,

I used $1.5 psf in my calculation.

$2 not impossible, the highest 2 contracts in the area is the last 2 years are $2.6 and $2; but they are the exception rather than norm. The lowest contract are only about $1. Although I dun think it will go that cheap, hence my choice of $1.5

http://sillyinvestor.files.wordpress.com...09/tr2.png

Info originated from sq foot research

I dun know about the interior spec, if u take that into considerations maybe its a good deal, I simply look at other building of similar land sizes and with longer lease along chai Chee. Doesn't look cheap to me. But maybe interior does matter. And of course, I does not know the plot ratio, so looking at land sizes might not be accurate. Thanks for the input, give me more food for thought, and the link too.. Another source for scuttlebutting!

http://sillyinvestor.files.wordpress.com/2013/09/tr.png

[HitandRun]

Greenrookie san

Good work but there are industrial properties and there are industrial properties. You have to look at specs like floor loading, ceiling height, power (electricity), air-con, state of the fixture and fittings, etc. Typically, semiconductor industry have very high specs one......

[Greenrookie]

Greenrookie san

Good work but there are industrial properties and there are industrial properties. You have to look at specs like floor loading, ceiling height, power (electricity), air-con, state of the fixture and fittings, etc. Typically, semiconductor industry have very high specs one......

hmm... OK! so AMD should be classified under "high Tech industrial" space under sabana?

OK, at least I now dun see management in such bad light, and I know my estimate is conservative.. hehehe... But then, will the advantage become an disadvantage? Are there ready market for such high tech space?? Dun know where to search for such segmented info? ANY more LINKS???

[HitandRun]

Are there ready market for such high tech space?? Dun know where to search for such segmented info? ANY more LINKS???

Greenrookie san

No links but a suggestion. You can pretend to call up these agents and say you are contractor for a big semiconductor company and wish to lease space of 8,000 to 10,000 sqft. Ask them about ceiling height, floor loading, central aircon, high tension power, etc. where have and how much? And whether such space in short supply or surplus.....

[Dividend Warrior]

Are there ready market for such high tech space?? Dun know where to search for such segmented info? ANY more LINKS???

Greenrookie san

No links but a suggestion. You can pretend to call up these agents and say you are contractor for a big semiconductor company and wish to lease space of 8,000 to 10,000 sqft. Ask them about ceiling height, floor loading, central aircon, high tension power, etc. where have and how much? And whether such space in short supply or surplus.....

Wow! Nice idea!

[xaley]

Price is cheap, but means nothing to existing unit holders as long as gain not realized. If they don't sell for 10 years, unit holders wait for them 10 years? Then mean time how? I did some quick calculations with the following assumptions.

1) units dilution
2) income remains stable from existing properties
3) chai chee property eventually gets 100% lease out. (take how long? maybe 6 months to a year? Not sure.)

The DPU for existing unit holders just increase by around 0.005cents. Not much room for downside.

That means existing unit holders have to bear with the following
1) wait till 100% tenancy at chai chee lane.
2) risk current master leases not renewing in the mean time.

So if property remains vacant for a long time, and master leases not renewed, existing unit holders lose big. They have to wait a long time just to get back to previous yield (depending on when they bought).

And all this is happening because of the private placement, which is not within the control of existing unit holders. New unit holders are better off. Even if they buy now, they only risk losing some temporary downside should master leases not renew. But they stand some upside potential when chai chee lane income kicks in + 50% vacancy to be filled, which can further contribute to income.

Personal opinion, HSBC and reit manager are winners in this deal. Existing unit holders lose due to dilution. Those who bought at 1.2+ surely feel the hurt.

What to say, they know how to work within the framework without having to consult unit holders. The REIT got bigger with an additional big property, the bank got 40 mil units at a huge discount, and AMD gets to record a huge gain on their balance sheet. All that, at the expense of existing unit holders, whom I feel have been taken for a ride unfairly.

They said they didn't choose rights issue because time frame not acceptable to third party vendor. Then don't buy lah!

They also said 9% discount due to market sentiment: Syria war, bla bla.

So market sentiment is bad, and timing not acceptable, then why still go ahead with the deal??? Sounds like a load of BS to me. Haha. Only reason I can think of is that they can see benefits for themselves and not for existing unit holders.

Previously I have nothing but good things to say about them. Now, not so sure, haha.

Maybe someone can write in to ask them how is the deal yield accretive to existing unit holders?

[cfa]

Sponsor only want to own 10% , worth pondering.

[felixleong]

Response from Sabana's IR (Grace)

My questions, their response:

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Sabana announced not too long ago about a MTN programme,so why do placement? Why not drawn down loans?



· Tapping the established MTN programme (debt funding) at this point would be too costly. In addition, the MTN programme is feasible only if it involves an amount of at least S$50 million, which is higher than what we required (about S$30 million).

I am fully aware that with the $60 million acquisition, gearing will go above 40%, 40.5% if my calculation is correct. Then my next question, why not a rights issue so that existing shareholders can participate in it without dilution and enjoy a discounted price.



· The funds (equity) were raised to partially finance the acquisition of 508 Chai Chee Lane. The vendor of the property is a third-party, unrelated to the sponsor. This therefore means a less flexible timeline to complete the acquisition.
· We believe that 508 Chai Chee Lane is a good quality asset to be added to our existing portfolio that will help generate attractive and stable DPU for Unitholders over time.
· We had evaluated relevant funding methods and concluded that for an amount of S$40 million, it would be more practical to raise funds via a share placement (for equity portion) in order to meet the timeline given by the vendor. Fund raising via a rights issue, for example, would take longer than what is acceptable to the third party vendor.
· The balance of about S$30 million will be funded by debt.
· We do not expect the overall gearing to reach 40%.


Lastly, why a discount of more than 9% and more than 10% to last traded price of 1.125? Please be mindful that Acendas reit, Ascott reit, and Aim industrial reits recent placements are all at discount of below 5%. If the discount is necessary to attract investors at such unfavorable terms, then back to the first question, why not a rights issue at 5% discount? Or for the case of rights, a 10% discount will be welcomed. Pardon my bluntness, such exercise come across to me as opportunistic and shareholder unfriendly.



· The pricing of the share placement reflects the prevailing market sentiment and expectation of investors given the uncertainties in Syria and the upcoming FOMC Meeting scheduled for 17-18 Sep 2013.


Lastly, UOBKayhian mentioned that your proposed acquisition of Chai Chee is a half vacant building. Why buy a half vacant building when URA figure shows supply pressure. If the report is accurate, you purchase yield will be 2.5% - 4.5% using the average of your portfolio rents. Hardly a value purchase or yield accretive one?



· The property at 508 Chai Chee Lane is approximately 11.0 years old, with balance land tenure of 46.5 years, longer than Sabana REIT’s existing portfolio of approximately 38.8 years. It is strategically located next to the Pan Island Expressway (PIE) and is about five minutes’ drive from Bedok and Kembangan MRT Stations on the East‐West Line. Long‐term leaseback to the Vendor provides initial income stream and potential access to increasing market rentals for balance of space leased to third party tenants. Given the excellent location and good building specifications of 508 Chai Chee Lane, we are confident of filling up the remaining 50% occupancy.
· Based on our projected occupancy assumptions, the initial yield is likely to be higher than our estimated wacc (weighted average cost of capital) of sub-7%. Hence, from this perspective, the acquisition is attractive.


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My thoughts:

I appreciate the reply from management, but I felt a rushed deal it seldom a good deal.

I am not a industrial property guru, so I reserve comments on how good the buy is, but given new supply coming online in the next 2-3 years, and industrial rent index starting to trend down, why the rush to buy the building and adhered to the harsh timeline?

Drawing down loans to meet the timeline, and explain the rationale for momentarily breach of self-imposed 40% gearing and get rights to bring it down, seems more reasonable. I note Nick point about placement, the issue here is the discount. The placement has already land the investors 12% profits, including dividends. Also, I can choose not to subscribe to the rights if I dun mind the dilution and is convinced that the future yield can offset dilution. I can at least buy at a discount, if I believe in the value, or just pass. Now, I have No choice, No way to make up for the discount "shortchange"

thanks for the info, very insightful

I can only sum them up as horrible management... I would rather they do nothing then get into such a bad deal, where everyone is a winner except the shareholders...