Sabana Shari'ah REIT

[NTL]

(Warning: Just my speculation)
I remember reading somewhere that notice for non-renewal of Master leases should be around 6-9 months. Thus, given there is no announcement of non-renewal of Master leases, we can conclude the following:

1) The 7.2% NLA that will be free up is the existing vacant units that is currently existing, it is not due to anyone moving out.

2) If the master lessee want to move out of the premises, they will not need to negotiate till this eleventh minute, they will give notice of non-renewal. So if the master lessee is staying put, even if they give up the status of master-tenant and become a sub-tenant, the impact on revenue should be very minimium, what I am trying to say is, the 7.2% NLA free up might not cause a proportional/ or any fall in revenue.

3) The reason why it is taking so long is everyone guess, my take is the amount of rental revision that is holding everyone back

Do I make sense? I hope. (vested)

What I feel is as follows.

- The 7.2% includes the current empty space + the potential space given up by the master tenants when it's due. Why is the negotiation still carry out is that it is always easier to retain the existing tenants rather than look for new ones. Maybe with a better than market terms?

- The sub-tenant rental rates likely will be higher in term of psf. So if Sabana can be efficiently manage the place, they may be able to get a better return even with the 7.2% vacancy.

- They will need to fill up the empty spaces to look good to investors. However, recently just visited a new industrial building in Woodlands. The whole place is so empty, and the landlords are all cutting rents to attract tenants. Will this happen to Sabana too?

- I do agree that some or maybe most SMEs of size below 100 will be staying in Singapore, if their market is currently here. It will not be cost effective for them to go over to Malaysia and still want to serve here. Those going there are likely to take advantage of the lower labour cost for production purpose. For service and R&D industry, likely they will stay. If the govt want to support a 6.9M population, these SMEs will be the core of employer (after the govt sector, of coz).

[countonme]

I tend to agree with this viewpoint. Armstrong probably w face problem of hiring workers too, maybe plus worrying how to secure the premise. All the iskanda talk is like fairy tale n even mmlee also warned.

Is it definite that the expiry of the leases will result in a decline on revenue ? Aren't industrial reits reporting positive rental reversions over the past few quarters ? I think the main benefit of this acquisition would be the length of its leasehold compared to the weighted average land tenure of the REIT.

(Not Vested)

Agree. If I were the REIT manager, I will try to sell properties with leasehold period falling towards 20 years and buy properties with longer tenure (30 years or more)....

Some forumners are saying that due to the fact that Singapore companies are moving out, industrial rents will fall. I think this observation should be taken in context. As far back as 20 years ago or even longer, Singapore companies have been moving to Malaysia. So far, I am not seeing falling occupancy in any of the listed industrial reits yet.....

[Dividend Warrior]

.....If the govt want to support a 6.9M population, these SMEs will be the core of employer (after the govt sector, of coz).

U made a good point, NTL. I agree.

Reminds me of the speech given by DR Tan Ghee Giap at HCBA Gala Dinner on 5 April 2013.

"SMEs currently employ 70% of the total Singapore workforce....."

Mr Lee Kuan Yew also said this in his new book.
"If our SMEs collapse, we will lose more than half of our economy."

[Image: 28849207%20-%2006_08_2013%20-%20lhchen.j...k=obp3Vkmb]

[HitandRun]

- I do agree that some or maybe most SMEs of size below 100 will be staying in Singapore, if their market is currently here. It will not be cost effective for them to go over to Malaysia and still want to serve here. Those going there are likely to take advantage of the lower labour cost for production purpose. For service and R&D industry, likely they will stay. If the govt want to support a 6.9M population, these SMEs will be the core of employer (after the govt sector, of coz).

My position is slightly more nuanced. Big companies or SMEs have been going to JB, other parts of Malaysia or other countries to set up their offices or factories for many years. It is not a recent phenomenon.

However, may other enterprises also start-up or expand their businesses in Singapore too. It is the net movement (expansion or contraction) that we should be concerned with. So far, we are not seeing growing vacant space / properties in any of these industrial reits...

[corydorus]

To support 6.9M, you need jobs for them. More Industrial Lands are needed to support their employment in-addition to retails and services. I do not see price in industrial will collapse significantly, just contained if that's the plan. The Gov can anytime slow down the population intake and release of lands.

[Stocker]

More MNCs are scaling down or moving out of Singapore recently. Go to Woodsland and sembawang areas to see the many long vacant factories.

[Greenrookie]

If u look at URA data, I think the worst is 83percent occupancy rate during the 2002-2003 period( iirc) u can do some stress test and check the viability of sabana if that happens. I think u do some calculation and realised that we are talking about max of 40 % fall in rev in worst case scenario, which to me is not crippling. ( of course, price might still fall but I think it's a reasonable price to pay now)

During normal years, I do not foresee worse years than 2002. I believe URA figures to be accurate. It's has already show a consistent trend of falling vacancy, and I believe the worst is not over. But, it's also overly pessimistic to think that Singapore industry is hollowing out

[Drizzt]

if i may, perhaps warehouse heavy industrial reits will do better since these facilities tap into multi trends, needs to be situated strategically, not suceptable to high labor cost issues and a play into the island as a logistics center.

aims amp, cache and to a certain extend sabana is a play towards that.

[Dividend Warrior]

........play into the island as a logistics center.

aims amp, cache and to a certain extend sabana is a play towards that.

I agree. Logistics assets are pretty 'sticky' for the tenants. I remember the CEO of cache saying that certain cargo must have specialized storage. For example, it's cold hub is able to store important medical supplies at specific temperatures. Not many industrial properties in Singapore can do that.

However, the potential risk with cache is that because it is more 'niche' than other industrial REITs, its main tenant is CWT/ C&P, which is also the sponsor. Most of the master leases are expiring in 2015 and 2016. I think the sponsor will very likely renew the leases again at higher rates. But the risk is still there. Secondly, a huge amount of refinancing needs to be done in 2015 too.

May I ask your views on maple logistics trust?

(Vested in cache, aims & Sabana)

[Greenrookie]

I think some playing around with numbers.

I assume come:
2014, when the first trance of loan will be refinanced at 1% interest rate higher
2015, the second loan will be refinance at 2.5% interest rate higher.

I also account for dilution of units due to management fees.

I come to the following conclusion:
2014 yield will be 8.1%, dividend =9.2 cents
2015 and 2016 (No refinancing in 2016), yield will be 7.1%, dividend 8.1 cents per year

Assume I do not want to wait for the refinancing that will happen in 2017.

I will get 25.3 cents in dividends.

Assume Mr market still demand 8.5 % in 2016, price will be 95.2 cents.

Net gain is still 25.3 cents - 18.3 cents = 7 cents

Well, 7 cents return for 3 years is ridiculous. But at least there is not capital loss.

I have not take into account the Chai Seng acquisition, so my projection is highly conservative, to guage if there is any MOS for interest rate hike.

I think for SOR to hit 2.5% in 2015 is highly agressive too.

So there is some Margin of safety for capital loss.