Sabana Shari'ah REIT

[ACTIVIST SPEAKS]

Thanks boon...I did include your call/put option point. On second reading, it probably turns out to be the strongest point I have in my lengthy complaint. And I got a feeling this is the one that may stick. All the others are "known inherent problems" of the REIT markets. Anyway, I have exhausted all avenues to try to remove the Manager outside the EGM. If the authorities, MAS, SGX and CAD, decide not to initiate any investigation that may lead to the removal of the manager, I will have to take my chance in the coming EGM.

[laksaman57]

Ready your boots
https://www.reitsweek.com/2017/02/sabana...nager.html

[laksaman57]

http://www.businesstimes.com.sg/real-est...lost-trust

[Boon]

Knight Frank valuation report:
 
“We are of the opinion that this rental support is not unreasonable and is in line with general market practice for similar kind of arrangement where rental support is given to compensate for lower passing rents as compared to current market rents or when vacant units and/or expiring leases are expected to be renewed or re-let at the prevailing market rents.“
 
Savills valuation report:
 
“We are of the opinion that this rental support is not unreasonable and is in line with general market practice for similar kind of arrangement where rental support is given to compensate for lower passing rents as compared to current market when vacant units and/or expiring leases are expected to be renewed or re-Iet at the prevailing market rents.“
 
Manager’s announcement :
http://sabana.listedcompany.com/newsroom...XXZX.1.pdf

 
The valuation of the Property takes into account the rental income support to be provided by the Vendor under the Lease Agreement.
 
Savills and Knight Frank are of the opinion that the rental support is not unreasonable and is in line with general market practice for similar kinds of arrangement where rental support is given to compensate for lower passing rents (as compared to current market when vacant units and/or expiring leases are expected to be renewed or re-let at the prevailing market rents).
 
On the basis of the above, the Board of Directors of the Manager is of the view that the rental income support is on normal commercial terms and is not prejudicial to the interests of Sabana REIT and the holders of units in Sabana REIT (“Unitholders”). 
_____________________________________________________________________________________________________________________

For another bit of fun...................

Do the two valuation houses have exactly the same opinion that the Manager is referring to ?
_____________________________________________________________________________________________________________________

[ACTIVIST SPEAKS]

That is good.....if I ever get the chance to ask Knight Frank and Savills, I would really love to hear their answer. I append hereunder excerpts of what I wrote to MAS on the point that you came up. I thought it is really super but strangely, nobody seems to take any notice of it. Perhaps I did not write it good.

"MAS imposes a statutory duty on a REIT Manager and its individual directors to prioritise the interests of unitholders over those of the REIT Manager and its shareholders, in the event of a conflict of interest. The state of mind of the REIT Manager is of essence as it often dictates its course of action if a conflict of interest does arise. On 15 Dec 2016, the Manager directed the Trustee to enter into a conditional put and call option agreement with the Sponsor (also the controlling shareholder of the Manager) in relation to the proposed acquisition of 47, Changi South Property. The Manager directed the Trustee (buyer) to pay an option fee of 1% ($246,100) to the Sponsor’s solicitors but the Manager did not require the Sponsor (seller) to pay to the REIT any fee for their put option. This is unfair under normal circumstances, let alone this is an obvious “conflict of interest” scenario. The Manager not only did not prioritise unitholders interest over those of the Sponsor, it did the exact opposite by protecting the Sponsor’s interest over those of unitholders. The Manager violated this statutory obligation and it must face criminal liability."

[YMPL]

Interesting post from Boon. I didn't read further into the two reports.

There are proven tools available for "plagiarism detection", which is to detect potential plagiarism in our Internet world. It is commonly used nowadays in Universities. 

https://en.wikipedia.org/wiki/Plagiarism_detection

The common techniques are the word-frequency histogram, formatting, and many others.

Will similar tool able to detect plagiarism if any? Both reports should be independently accessed. I really hope the reports are, instead of an ignorant cut-and-paste work. Knight Frank and Savills are respectable professionals in the field.

(not unitholder, but a busybody)

[ACTIVIST SPEAKS]

Boon, the way I see this is the Rental Support was never used to compensate the lower passing rent but for jacking up the purchase price calculated by DCF model. The fact that they both have similar template statements just disgust me. I do not think the system is flawed, but there is abuse. 道高一尺，魔高一丈

[Boon]

Boon,  the way I see this is the Rental Support was never used to compensate the lower passing rent but for jacking up the purchase price calculated by DCF model.  The fact that they both have similar template statements just disgust me.  I do not think the system is flawed, but there is abuse.  道高一尺，魔高一丈

[Image: 246mjow.jpg]

“The Rental Support was never used to compensate the lower passing rent but for jacking up the purchase price calculated by DCF model.”
 
If actual market rent = passing rent = 1.35 /sf/month => no compensation for passing rent => purchase price is being jacked up.
 
If market rent > 1.35 / sf / month but less < 1.80 / sf / month => there is justification for compensating lower passing rent => but property price is still being jacked up.
 
The critical factor is what is correct market rent? 

The third party tenant has leased a total LFA of about 24,000 sf at a monthly gross rent of $32,400 for a lease term of 2 years commencing on 1 September 2016 with an option to renew for another one year with a rental increase cap at 10%.
 
32,400 per month ó 388,800 per year ó 1.35 /sf/month (lease commencing 01- Sep – 2016)
 
Savills states that “based on our research data, we are of the opinion that the current market rent for comparable class of property is in the range of $1.80 to $2.10 psf per month and the property rental income (taking into account the rental support amount) falls within the acceptable range of market parameters for the subject property.” (valuation date: 09-Dec-2016)

If the market rent is 1.80 to 2.10, why let 26% of LFA out at 1.35 ?
_________________________________________________________________________________________

[ACTIVIST SPEAKS]

Thanks, this is simply amazing. Your last statement answers everything.... P.S remind me to never make you angry.

[ACTIVIST SPEAKS]

Boon, I submitted this as the complaint together with your table...thanks.

In appraising 47, Changi South Property, both Knight Frank and Savills are of the opinion that “the rental support is not unreasonable and is in line with general market practice where rental support is given to COMPENSATE for LOWER PASSING RENTS as compared to CURRENT MARKET RENTS…..”

74% of GFA is leased back to Vendor at average $1.95 psf.

26% of LFA is let to a third party tenant at $$1.35 psf. (LOWER PASSING RENTS commencing 1 Sep 2016)

Savills opines the CURRENT MARKET RENTS for comparable class of property is in the range of $1.80 to $2.10 psf per month (valuation date: 9 Dec 2016). This will justify jacking up rental to above $2.00 psf (rental support) to COMPENSATE for LOWER PASSING RENTS as compared to CURRENT MARKET RENTS.

The critical focus is what is the CURRENT MARKET RENT? If CURRENT MARKET RENT is $1.80 to $2.10 psf, why let 26% of LFA to third party tenant at $1.35 psf???

The rental support was never used to compensate the lower passing rent but for the sole purpose of jacking up the price paid by the REIT using DCF model.