Sabana Shari'ah REIT

[Boon]

The same question bugged me throughout.  I append hereunder what I posted on our FB.

Is the Changi South Property a 10 years remaining + 30 years or is it a 40 years remaining JTC leasehold tenure? As per Right Offer information statement, Changi South Property is a leasehold estate of 30 + 30 years commencing from 16 Nov 96. On SGXNET, when defending the high price paid in exchange for a rental support arrangement, Kevin Xayaraj pointed out that the book value of Changi South Property at $9.9m in the Sponsor’s book reflected the original cost of acquisition less accumulated depreciation. As per renewal of JTC lease guidelines, renewal of the second 30 year lease is normally done at 6 years before the expiry of first 30 years lease. We do not see any land rent or any upfront land premium paid for the second 30 years lease in Vibrant’s accounts. This property does not have a remaining leasehold tenure of 40 years (like what Kevin Xayaraj said on SGXnet) if the land rent and the upfront rent premium are not paid for the second 30 years lease. Technically speaking, this is just a 10 years remaining lease property

If it is indeed a 10 years lease remaining property, it begs a few questions
1. Does the Manager know what the land rent and upfront rent premium payable are for the second 30 year lease?
2. How did the six licensed appraisers from Colliers, Savills and Knight Frank come up with similar valuation if they do not know the land rent and the upfront rent premium payable for the second 30 years lease?
3. How can the Manager justify the purchase at $25.3m (including a $1.1m upfront land premium of for the first 30 year lease) in return for $17.1m rent (74% of the GFA) payable over 10 years?

I tried to get more information from JTC but was denied because it is confidential information between JTC and Vibrant. Perhaps, Kevin Xayaraj can enlighten us whether Changi South is a 10 years or a 40 year remaining JTC leasehold tenure. If it is indeed a 10 years remaining JTC leasehold tenure, Kevin Xayaraj and his gang must resign!!!

Interestingly, in Savills valuation report, it says "we are instructed to value based on balance un-expired interest of about 39.9 years"

How do you know the 1.1 m upfront land premium is for the first 30 year lease ?
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[ACTIVIST SPEAKS]

I try to confirm with JTC but they said it is confidential. The upfront land premium they paid for another property (10 Changi South, St 2) in 2014 was $4.3m for 10 years remaining of the first 30 years. In this 2014 announcement, it was stated that it was for the balance of the first 10 years. This present announcement was silent what the $1.1m was for. Just comparing the figure and also the fact that JTC says that they will only start talking about the second 30 years renewal when it is 6 years before the expiry of the first 30 years lease, I assume the $1.1m paid was for the first term.

In addition, this is not the first announcement whereby they announced a 10+30 years remaining as a remaining tenure of 40 years. The Chai Chee property is 17.5+29 year remaining (where the second 29 years upfront land premium has not been
paid) property which Sabana describe as a property with a remaining tenure of 46.5 years.

Do you think I have a case against them?

[thor666]

I try to confirm with JTC but they said it is confidential. The upfront land premium they paid for another property (10 Changi South, St 2) in 2014 was $4.3m for 10 years remaining of the first 30 years. In this 2014 announcement, it was stated that it was for the balance of the first 10 years. This present announcement was silent what the $1.1m was for. Just comparing the figure and also the fact that JTC says that they will only start talking about the second 30 years renewal when it is 6 years before the expiry of the first 30 years lease, I assume the $1.1m paid was for the first term.

In addition, this is not the first announcement whereby they announced a 10+30 years remaining as a remaining tenure of 40 years. The Chai Chee property is 17.5+29 year remaining (where the second 29 years upfront land premium has not been
paid) property which Sabana describe as a property with a remaining tenure of 46.5 years.

Do you think I have a case against them?

I do not think u have a strong case as the rights prospectus does state JTC nonrenewals as a risk. Though i would agree the presentation is misleading, the unfortunate trend in SG is that caveat emptor is often practiced instead of minority protection.

Sent from my LG-H818 using Tapatalk

[corydorus]

One interesting comment to SGX queries ... SGX Query

"Please disclose if this increase in valuation reflects the trend of industrial
properties, and provide the AC's views on whether:
(i) the property valuation is on normal commercial terms and not prejudicial
to the REIT and unitholders; and
(ii) the property can be easily disposed by the REIT at the market price of $23
million in the open market."

[ACTIVIST SPEAKS]

It was disclosed that “The Manager is confident that the acquisition of the Changi South Property was in the best interest of Sabana REIT”. It was disclosed that the property was acquired by the Vibrant Group on 2 March 2011 for $10.9 million and will be acquired by the REIT at $23 million.

a) Please disclose if this increase in valuation reflects the trend of industrial properties, and provide the AC's views on whether:

(i) the property valuation is on normal commercial terms and not prejudicial to the REIT and unitholders; and (ii) the property can be easily disposed by the REIT at the market price of $23 million in the open market.

b) Please confirm that the acquisition is subject to the approval of unitholders, as announced on 15 December 2016.

c) Please disclose if the option fee paid is refundable if unitholders’ approval is not obtained.


Oh!..corydorus, you already posted this...haha

[Boon]

I try to confirm with JTC but they said it is confidential.  The upfront land premium they paid for another property (10 Changi South, St 2) in 2014 was $4.3m for 10 years remaining of the first 30 years.  In this 2014 announcement, it was stated that it was for the balance of the first 10 years.  This present announcement was silent what the $1.1m was for.  Just comparing the figure and also the fact that JTC says that they will only start talking about the second 30 years renewal when it is 6 years before the expiry of the first 30 years lease, I assume the $1.1m paid was for the first term.  

In addition, this is not the first announcement whereby they announced a 10+30 years remaining as a remaining tenure of 40 years.  The Chai Chee property is 17.5+29 year remaining (where the second 29 years upfront land premium has  not been
paid) property which Sabana describe as a property with a remaining tenure of 46.5 years.

Do you think I have a case against them?

From page 80 of the Rights Offer information statement:

Sabana REIT may have to set aside an estimated amount of capital for the payment of an upfront land premium in respect of future acquisitions.
"Under JTC’s current policy (which came into effect on 1 January 2013) governing the sale and assignment of a JTC lease by a lessee to a buyer which is a third party facility provider such as a REIT, if such JTC lease provides for the lessee to pay JTC a yearly rent (the “Existing Rent Payment Scheme”), JTC requires such buyer to pay JTC, prior to the completion of the sale, an upfront land premium for the balance of the JTC lease term in place of the Existing Rent Payment Scheme. Sabana REIT may have to set aside an estimated amount of capital for the payment of such upfront land premium in respect of future acquisitions, which could adversely affect Sabana REIT’s cash flows. The existing Properties that are affected are 508 Chai Chee Lane and 10 Changi South Street 2. Sabana is also required to pay an upfront land premium to JTC in respect of the Changi South Property."

Questions remain:
1) The upfront land premium of 1.1m is for replacing how many years of rent in advance ? 10 years only or "10 + 30 years"? 
2) Is there any other land premium to be paid?  
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[ACTIVIST SPEAKS]

If you look at Knight Frank's valuation report:

"Basis of Valuation: Market value on existing use basis........and including an estimated upfront land premium for the balance of the initial 30-year lease term."

I think we can safely conclude that the $1.1m was for the first 30 years only. Thanks for the pg 80. By extension, I can also conclude that upfront land premium for the second 30 year lease is not paid

In any case, the reporters are going to question the REIT Manager about this directly. It appears that this omission of information is deliberate as other past announcements from them always specified clearly.

[CY09]

Hi all,

The 1.1 mil is definitely not for the 2nd phase of 30 years. Kingsmen creative recently bought a nearby plot for 7 mil for a 20 year lease. JTc is not allowed to sell land below fair market value according to its statuory law (willing buyer willing seller consideration)

Therefore by rationale deduction, if sabana is to renew it's 30 year lease, it is definitely in the region of 7 mil and not 1.1 mil

[ACTIVIST SPEAKS]

CY09, thanks. This is very helpful.

[Boon]

If you look at Knight Frank's valuation report:

"Basis of Valuation:  Market value on existing use basis........and including an estimated upfront land premium for the balance of the initial 30-year lease term."

I think we can safely conclude that the $1.1m was for the first 30 years only.  Thanks for the pg 80.  By extension, I can also conclude that upfront land premium for the second 30 year lease is not paid

In any case, the reporters are going to question the REIT Manager about this directly.  It appears that this omission of information is deliberate as other past announcements from them always specified clearly.

If KF has factored in 1.1 m upfront land premium in its DCF analysis, shouldn't the market value (excluding transaction costs) be assessed as 21.9 m (23 - 1.1) instead of 23 m ? 

And why the Reit has to pay 24.1 m (23 + 1.1) for it ?
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