Sabana Shari'ah REIT

[Greenrookie]

Hi guys ,

One of the main grouses for this counter is its weak sponsor. It is assumed that a weak sponsor will make it more difficult to get a loan when liquidity is tight.

However, for a weak sponsor like freight links, isn't it a good thing that it own only a small stake? Lets assume freight own a big chulk like SPH, in a rights issue, the biggest shareholder need to stump out the most. Wouldn't the fact that freight which is weak be less of a burden since it own less??

Besides this point, what implications are there for a weak sponsor? As fr pipeline of assets to be injected into reits, they might not come at a good price, like the case o Keppel REIT, even LMIr malls took a while to be yield accretive.

2nd question, beside the yield of properties, how else can we know if a I industrial property is of quality? Malls seem easier to scuttlebutt. Any other numbers to look t beside NPI ?

Last is a silly qn which is always on my mind. Lets hypothetically assume the sponsor go under, it's small stake in units are fire sale to creditors, and the sponsor partially owned the manager. Can the manager be taken over by creditor?

Lastly, say A owns a few companies. One of the company go under, can creditors go after A private assets or the other companies A own, or all the creditors can recover is whatever assets the company that goes under has?

[Stocker]

It is only fair to unit holders for manager to take cash because when they issue units as payment, they always base on the rate/ratio which is more favourable to manager.
Moreover , keep issuing units will cause dilution gradually .

[corydorus]

How large is the differences that the REIT cannot afford ? I think the point is do we have a good management. You pay penny you get monkey. Is all about the people inside. As long you are happy with the yield that's what matter.

[Temperament]

i always have this funny feelings if management of a REIT keep on collecting payment in new issued units, then surely one day, management becomes the main shareholders again. Is there any regulations or bye-laws that limit the amount of shares, management can own? i prefer management be paid in cash.
Furthermore it distorted the amount of DPU payable to shareholders.

[Greenrookie]

i always have this funny feelings if management of a REIT keep on collecting payment in new issued units, then surely one day, management becomes the main shareholders again. Is there any regulations or bye-laws that limit the amount of shares, management can own? i prefer management be paid in cash.
Furthermore it distorted the amount of DPU payable to shareholders.

I think the dilution is quite a non-issue. Assume AUM remain the same and price of unit drop further to $1, and the choose to pay themselves 100% in units (the last quarter was 80% unit - 20% cash), it will take 44 quarters before there is a 10% dilution.

10 years for dilution of 10 %, if reit cannot increase DPU by 1 % in 1 year for 10 years, we should say bye bye to it earlier, isn't it?

I am more worried about the demand and supply of industrial spaces and the impact on rent.

[Nick]

The dilution is quite immaterial compared to the placements / convertible bond issues which most REITs will undertake to increase AUM. The dilution is far more severe in those equity fund raising exercises. Hence I feel this is really a non-issue and the boost in DPU is pretty substantial which translates to higher share prices.

[Temperament]

Yes! Must always be alert whenever there is capital structure change. Whether debt or equity. Why? For what?

[Greenrookie]

Was looking thro the properties of Sabana reit can observe the following:

1) All properties have gross property income falling by 5-10% from 2011
2) Yield of rental income to cost of purchase average 7.5%

When I compare these findings with cambridge,

1) Cambridge rental income from 2011-2012 are mostly stable or rising.
2) Yield of rental income to cost of purchase also average 7.5%

BUt if we look at the recent acquisitions of Sabana and AEIs of cambridge,
Sabana serangoon purchase still yield 6.8% whereas cambridge AEIs yield are about 4.4%. The woodlands loop deal and serangoon deal looks prudent.

The av. rent of warehousing and general industry of Sabana and Cambridge are
$15.6:$9.7 and $14.9:$8.2

Not sure what to make up of these numbers, Sabana properties are of better quality and hence the rent psf is higher, or sabana is pricing itself out of the market and we need to expect further revision downwards?

Even for 2 properties that are a stone throw from one and other:
6 Woodlands Loop (sabana) and 28 Woodlands Loop(cambridge)
rent psf = $16.7 : $9.13
15 Jalan Kilang Barat (sabana) and 2 JALAN KILANG BARAT (cambridge)
rent psf = $35: $32

On a side note,
I also look at the development of cambridge;
Cambridge will net 68 million from its divestment of 63 hillview ave.(almost 100% gain from its purchase cost of 72 million), but will loss 4.3 million in annual rent.

The 4.3 million will be offset by the 3 AEIs.

Net proceed from divestment=140 million
Cost of 3 AEI= 75 million
cash as of 2nd quarter= 33 million

SO cambridge will about 100 million for acquisition without taking more loans, the previous yield of Hillview is 5.1%, assume they find something similar, we can expect 0.4 cents increase in DPU annually, not very exciting in my view.

[Stocker]

Usually for the reits to acquire the properties , the reits have to pay a higher property price in exchange of a higher rental master lease of 3 to 5 years . The real rental returns will be after the master lease.
Ho Bee will not renew the master lease for the 15 Jln Kilang Barat property, and this property still has many vacant lots. I was in this building 2 months ago.

[HitandRun]

Eh... Greenrookie

The error in your Sabana report in the number of months lah.... Previous financial year for them was 14 or 15 months....