Sabana Shari'ah REIT

[Stocker]

All businesses have risks, this is one of the risk that unitholders have to face.

[Drizzt]

i think sabana is walking a tightrope here. asset devaluation will affect their 2013 refinancing and their limited access to shariah compliant debt financing may escalate borrowing cost.

the leaseback model is as good as the financial standing of the tenants. if your tenants is bo mia tenants, who is to say they wont go bust.

[Stocker]

SABANA SHARI’AH COMPLIANT INDUSTRIAL REAL ESTATE INVESTMENT TRUST

COMPLETION OF ACQUISITIONS OF 3A JOO KOON CIRCLE, 2 TOH TUCK LINK AND
21 JOO KOON CRESCENT

Singapore, 22 November 2011 – Sabana Real Estate Investment Management Pte. Ltd., the Manager
of Sabana Shari’ah Compliant Industrial Real Estate Investment Trust (“Sabana Shari’ah Compliant
REIT”), is pleased to announce that Sabana Shari’ah Compliant REIT has completed the acquisition of
3A Joo Koon Circle, 2 Toh Tuck Link and 21 Joo Koon Crescent today.
Said Mr Kevin Xayaraj, Chief Executive Officer and Executive Director of the Manager, “We are
pleased to finalize the first acquisitions since Sabana REIT’s IPO. The total asset under management
has now reached S$ 1.0 billion.”
“The new acquisitions will improve Sabana REIT’s asset and tenant diversification and will provide
attractive cash flows, yield-accretion and capital growth opportunities for Unitholders over time,”
said Mr Xayaraj.
The acquisition of the three properties was fully funded by debt and sold to Sabana Shari’ah
Compliant REIT on sale and leaseback arrangements. The all-in cost of new debts is approximately
3.9% per annum.
The new properties will bring the total number of buildings in Sabana Shari’ah
Compliant REIT’s portfolio to 18, and will increase its weighted lease tenure and reduce its lease
expiry concentration in 2013 and 2015.
=== END ===

The all-in-cost of new debts is 3.9% , is the borrowing costs considered expensive ? How accretive will the new acqusitions be ?

---

SABANA SHARI’AH COMPLIANT INDUSTRIAL REAL ESTATE INVESTMENT TRUST

COMPLETION OF ACQUISITIONS OF 3A JOO KOON CIRCLE, 2 TOH TUCK LINK AND
21 JOO KOON CRESCENT

Singapore, 22 November 2011 – Sabana Real Estate Investment Management Pte. Ltd., the Manager
of Sabana Shari’ah Compliant Industrial Real Estate Investment Trust (“Sabana Shari’ah Compliant
REIT”), is pleased to announce that Sabana Shari’ah Compliant REIT has completed the acquisition of
3A Joo Koon Circle, 2 Toh Tuck Link and 21 Joo Koon Crescent today.
Said Mr Kevin Xayaraj, Chief Executive Officer and Executive Director of the Manager, “We are
pleased to finalize the first acquisitions since Sabana REIT’s IPO. The total asset under management
has now reached S$ 1.0 billion.”
“The new acquisitions will improve Sabana REIT’s asset and tenant diversification and will provide
attractive cash flows, yield-accretion and capital growth opportunities for Unitholders over time,”
said Mr Xayaraj.
The acquisition of the three properties was fully funded by debt and sold to Sabana Shari’ah
Compliant REIT on sale and leaseback arrangements. The all-in cost of new debts is approximately
3.9% per annum. The new properties will bring the total number of buildings in Sabana Shari’ah
Compliant REIT’s portfolio to 18, and will increase its weighted lease tenure and reduce its lease
expiry concentration in 2013 and 2015.
=== END ===


Is the all-in-cost of borrowing of 3.9% expensive ?
How accretive will the acquisitions be ?

[cookieguy]

a trust fully funded by rights issue, is bad management of money...a better run company will use low cost debt to profit more.

Hahaha...agree...it's as good as asking unitholders money always with their palms wide open!

No different from a beggar...lol. (at least a beggar thank and bless you good luck!)

[Drizzt]

if a reit is fully funded by equity there is no covernant to worry about, price should fluctuate based on its consistent stream of cash flow and its share price the aggregate of it. risk becomes substantially reduce.

the determinent of actual share price value will be the purchase price at historical and the rental yield income.

[rafflesplaceguy]

60% if it obtains a rating from a rating agency.

Thanks. If sabana's leverage is capped at 40% , it will be considered "fairly safe".

Why would a gearing of 40% now be considered safe ?

On 31 Dec 2008, CIT had a gearing of 38% ($369 mil debt) while MI-REIT gearing stood at 40%. However by 31 June 2009, CIT gearing rose to 42% with minimal changes in their total debt. This was due to a decline in the valuation of their investment properties from $967 million to $880 million. Similarly MI-REIT saw its gearing rising to 45% on 30 Sept 2009 with minimal changes in the total debt. The rise in their gearing was attributed by a decline in property valuation from $530 million to $490 million. Both of these REITs was forced to refinance their loans at higher interest and had to raise DPU-dilutive equity fund-raising exercises.

In other words, the gearing is always in flux. There are 2 sides to the story - 1) Total Debt and 2) Property Valuation. A REIT may keep to their self imposed 40% limit during good times by limiting their debt but they cannot control how their property valuation will change in a recession. Investors should bear this in mind and seek a margin of safety ie a decline of property valuation by 10% and the gearing still remains < 38%.

Please feel free to point out any incorrect data/facts.

(Not Vested in any REIT)

There is no hard and fast rule to say that 40% is the "maximum" limit before the reit is deemed to be "overly" geared. A reit can collapse even with a 30% gearing if it is unable to roll over its debts when they fall due. Conversely speaking, a reit can gear 50% or more and still survive very well.

MI Reit and Cambridge had to refinance at a time when the world was still reeling from the global financial crisis. Furthermore both reits are relatively small in size and they are perceived to have "weak" sponsors. The lack of diversity in funding options could have also limited their choices.

In short, I don't think one should just blindly follow the "40%" mark to determine if a reit is "excessively" geared.

[Stocker]

Have wriiten to Bobby Tay and he gave me a reply as follows.

By the way, what did he mean by the portions " high lighted " in red ?
Dear XXXX

Sorry for the late reply as I am hosting some investors in town.

Our internal gearing target is not to cross the 40% mark and I do recall when some REITs in 08/09 closes in at over 50% gearing and was punish by the credit crunch that resulted them to do highly dilutive rights issue. Please rest assured this is unlikely to Sabana as we are not using conventional debt.
Our debt are sold to conventional and Islamic investors and this is why I structure Sabana as Shariah Compliant coz we are not joining the queue with 20 over REITs waiting to be financed by conventional.

I can hereby assure you that the manager will always place the unitholders interest first. Without you all, there will be no Sabana REIT for us to manage.

We have signed 3 MOUs but please be assured we will not touch the 40% gearing target.

Regards

Bobby

[freedom]

Sabana Reit uses Islamic debt, not conventional debt.

[Stocker]

Sabana Reit uses Islamic debt, not conventional debt.

Any significant difference when refinancing of debt is due /required ?

[Drizzt]

limited in financing, currently higher interest rate.