Sabana Shari'ah REIT

[Stocker]

Thanks d.o.g., Blackjack,and Nick for the analysis and comparison on the long list of reits, especially on the Industrial reits which were not just confined to 2 only.

[momoeagle]

I have a list of trusts which I think is well-managed -
...
Please add/substract from the list.

Speaking for myself, IMHO any trust that did a rights issue during the crisis automatically fails the "well-managed" test. The only ones that did not automatically fail in this regard would be, in alphabetical order:

Ascendas
Ascendas India
Ascott
CRCT
CDL HT
First
Frasers Centrepoint
LMIR
Plife
PST
Suntec

Of course, the list has to be further modified:

Suntec:

It is buying MBFC at a 4% yield. Fail.

CRCT:

Flattish sales during the crisis, but China's retail sales were booming, which suggests the malls are of poor quality. Fail.

Etc.

The new listings like Cache, MIT and Sabana are untested. However Cache is managed by ARA which can be evaluated from its behaviour with Fortune and Suntec, while MIT is managed by Mapletree which also manages MLT. Only Sabana's manager is truly new.

As usual, YMMV.

Hi d.o.g.,

Instead of giving rights, Ascendas REIT did private placements during the crisis.

[yeokiwi]

Hi d.o.g.,

Instead of giving rights, Ascendas REIT did private placements during the crisis.

Both private placement and 1-for-15 preferential offer for existing shareholders.
The preferential offer was essentially the same as a right issue since money was raised from the existing shareholders.

Technically, d.o.g. is right.

[Poowawa]

d.o.g, I don't think its quite fair to stereotype any trust that did a rights issue fails the "well managed" test. If you recall, quite a number of companies including blue chips did so as well albeit for different reasons.

Anyway at $0.94, Sabana Reit is trading at a forecast yield of 9.18% and below NAV of $0.99. Gearing is the second lowest next to Cache but note that Cache is trading above NAV and at a lower yield of 8.06%. Given that there is uncertainty over how the reit manager will perform, it has been classified along with smaller sized industrial reits like AIMSAMPIREIT and Cambridge and probably that is why it is trading at such a high yield and below NAV.

The way I see it, risk of default is relatively low with the majority of its income contributed by associated companies of CDL and Freight Links. Being Shariah compliant in my view is also a good thing as not only can it attract Muslim monies, it is conservative on maximum gearing and incentives for the reit manager.

That being said, besides the drawback of an untested reit manager, the way I see it, there will be keen competition for industrial properties with so many industrial reits around. Acquiring property could thus be problematic as competition is stiff. Sabana's sponsor Freight Links is also not exactly a giant so it can't provide a pipeline of good properties for Sabana.

I took a small position in Sabana today as the yield of 9.18% is attractive in my opinion. The fall in price I suspect is because of Moore Capital selling or shortists gunning for new IPOs due to poorer market sentiment.

I won't be surprised if Sabana drops more but am prepared to load up more as my plan is to nibble bit by bit. Lets see how it goes.

Cheers.

[Stocker]

Hi d.o.g.,

Instead of giving rights, Ascendas REIT did private placements during the crisis.

Both private placement and 1-for-15 preferential offer for existing shareholders.
The preferential offer was essentially the same as a right issue since money was raised from the existing shareholders.

Technically, d.o.g. is right.

d.o.g. was definitely right on this , he knew what he was talking.

[Nick]

It is terrible move to raise $$$ when your unit price is hammered down and trading at a huge discount to NAV. It is nearly impossible to launch a DPU accretive investment from such rights exercise nor will it boost the NAV. Actually, such moves are the result of their unsustainable high gearing level at that point of time when liquidity was drying up. It reeks of desperation and blatant mis-management. IMO, this is akin to issuing bonds below par value...

Personally, PST is my only business trust investment at this point of time. I highly expect it to raise US$40-50 million from the market in 2012. I certainly do hope that its unit price will appreciate to a level above its NAV of US$0.405 so that less shares can be issued to gain the same amount of $. It may even boost the NAV further.

Please correct me if I am wrong...thanks

[d.o.g.]

d.o.g, I don't think its quite fair to stereotype any trust that did a rights issue fails the "well managed" test. If you recall, quite a number of companies including blue chips did so as well albeit for different reasons.

I stated that I was only speaking for myself. Everyone else is entitled to a different opinion.

As for the blue chips, IMHO those that did rights issues also failed the "well managed" test:

Capitaland
DBS
Keppel Land
NOL

For Capitaland, the owner-managed equivalent is CDL. No rights issue.
For DBS, the comparables are UOB and OCBC. No rights issues.
For Keppel Land, the comparable is UOL. No rights issue.

There is no owner-managed NOL equivalent listed in Singapore, so the distinction is not so obvious. But combine the rights issue with the fact that just a few years ago, in 2006, NOL paid out a jumbo dividend totaling $0.92 per share ($0.62 plus $0.30), and you have to wonder whether the managers have any clue at all that NOL operates in a cyclical industry.

Ascendas REIT did private placements during the crisis.

Point conceded.

In any case I stated explicitly that the list was only of those that did not automatically fail and had to be modified further. Ascendas definitely loses a few points here against the others on the list.

[Drizzt]

ok can someone help explain the rule of thumb for raising capital based on the level of NAV? it seems that it makes more sense to raise close or above NAV rather than at a huge discount. why is that?

[Nick]

ok can someone help explain the rule of thumb for raising capital based on the level of NAV? it seems that it makes more sense to raise close or above NAV rather than at a huge discount. why is that?

If my share price was $1.50 and its NAV is $1 and I seek to issue 100 million new shares @ $1.30, I could easily raise $130 million to fund my growth.

If my share price was $0.70 and its NAV is $1 and I seek to issue 100 million new shares @ $0.50, I could easily raise $50 million to fund my growth.

Same amount of shares were issue yet different amount of $$$ were raised to grow the Trust.

This is how I view it haha

[lonewolf]

In other words, NAV is not a very meaningful concept and usually not taken in account much when REITs raise capital.

Rather is how big a discount you can give compared to adjusted volume weighted average price(VWAP) of the unit.