Sabana Shari'ah REIT

[valueinvestor]

If we are confident in that reit , why afraid to take up the rights and not to get diluted. Why give institutions the advantage at the expense of the existing shareholders, especially the minorities who don't earn anything from the acquisitions but the DPU which is not certain.
The true color of SABANA will only be known after the master leases and more private placements on acquisitions which the manager will benefit first.

[Temperament]

I would prefer placements as long as it is DPU accretive (or even neutral). The REIT diversifies its property base and clientele and if they are good Managers, the DPU would go up and yet I don't even have to put in a cent ! Just look at what FCT has done over the years. I don't get what is so fascinating over rights issue - why vomit back all the dividends (and more) back to the REIT ?

(Not Vested in any REIT)

Ha!Ha!
It looks like the best of both worlds you are advocating. Getting higher DPU and increases in AUM without further putting in a cent more from pop & mom investors. Excellent!
i agree if they are so many smart private investors and sponsor/management around.
Even then i am not so sure of the sponsor/management.

(Not Vested in any REITS yet)

[Greenrookie]

I would prefer placements as long as it is DPU accretive (or even neutral). The REIT diversifies its property base and clientele and if they are good Managers, the DPU would go up and yet I don't even have to put in a cent ! Just look at what FCT has done over the years. I don't get what is so fascinating over rights issue - why vomit back all the dividends (and more) back to the REIT ?

(Not Vested in any REIT)

Hey Nick,

Just curious here, from your postings on reits, it seems that u do watch them rather closely and u know quite a bit about them. Why then are u not invested in any at all? What is actually holding u back? If I may ask??

[Greenrookie]

Response from Sabana's IR (Grace)

My questions, their response:

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Sabana announced not too long ago about a MTN programme,so why do placement? Why not drawn down loans?



· Tapping the established MTN programme (debt funding) at this point would be too costly. In addition, the MTN programme is feasible only if it involves an amount of at least S$50 million, which is higher than what we required (about S$30 million).

I am fully aware that with the $60 million acquisition, gearing will go above 40%, 40.5% if my calculation is correct. Then my next question, why not a rights issue so that existing shareholders can participate in it without dilution and enjoy a discounted price.



· The funds (equity) were raised to partially finance the acquisition of 508 Chai Chee Lane. The vendor of the property is a third-party, unrelated to the sponsor. This therefore means a less flexible timeline to complete the acquisition.
· We believe that 508 Chai Chee Lane is a good quality asset to be added to our existing portfolio that will help generate attractive and stable DPU for Unitholders over time.
· We had evaluated relevant funding methods and concluded that for an amount of S$40 million, it would be more practical to raise funds via a share placement (for equity portion) in order to meet the timeline given by the vendor. Fund raising via a rights issue, for example, would take longer than what is acceptable to the third party vendor.
· The balance of about S$30 million will be funded by debt.
· We do not expect the overall gearing to reach 40%.


Lastly, why a discount of more than 9% and more than 10% to last traded price of 1.125? Please be mindful that Acendas reit, Ascott reit, and Aim industrial reits recent placements are all at discount of below 5%. If the discount is necessary to attract investors at such unfavorable terms, then back to the first question, why not a rights issue at 5% discount? Or for the case of rights, a 10% discount will be welcomed. Pardon my bluntness, such exercise come across to me as opportunistic and shareholder unfriendly.



· The pricing of the share placement reflects the prevailing market sentiment and expectation of investors given the uncertainties in Syria and the upcoming FOMC Meeting scheduled for 17-18 Sep 2013.


Lastly, UOBKayhian mentioned that your proposed acquisition of Chai Chee is a half vacant building. Why buy a half vacant building when URA figure shows supply pressure. If the report is accurate, you purchase yield will be 2.5% - 4.5% using the average of your portfolio rents. Hardly a value purchase or yield accretive one?



· The property at 508 Chai Chee Lane is approximately 11.0 years old, with balance land tenure of 46.5 years, longer than Sabana REIT’s existing portfolio of approximately 38.8 years. It is strategically located next to the Pan Island Expressway (PIE) and is about five minutes’ drive from Bedok and Kembangan MRT Stations on the East‐West Line. Long‐term leaseback to the Vendor provides initial income stream and potential access to increasing market rentals for balance of space leased to third party tenants. Given the excellent location and good building specifications of 508 Chai Chee Lane, we are confident of filling up the remaining 50% occupancy.
· Based on our projected occupancy assumptions, the initial yield is likely to be higher than our estimated wacc (weighted average cost of capital) of sub-7%. Hence, from this perspective, the acquisition is attractive.


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My thoughts:

I appreciate the reply from management, but I felt a rushed deal it seldom a good deal.

I am not a industrial property guru, so I reserve comments on how good the buy is, but given new supply coming online in the next 2-3 years, and industrial rent index starting to trend down, why the rush to buy the building and adhered to the harsh timeline?

Drawing down loans to meet the timeline, and explain the rationale for momentarily breach of self-imposed 40% gearing and get rights to bring it down, seems more reasonable. I note Nick point about placement, the issue here is the discount. The placement has already land the investors 12% profits, including dividends. Also, I can choose not to subscribe to the rights if I dun mind the dilution and is convinced that the future yield can offset dilution. I can at least buy at a discount, if I believe in the value, or just pass. Now, I have No choice, No way to make up for the discount "shortchange"

[valueinvestor]

If the existing unit holders decide not to take up the rights , they can choose to sell the right entitlements in open market to those who want to subscribe the rights.

[xaley]

Now, I have No choice, No way to make up for the discount "shortchange"

Yea, feel the same way as you. Try to acquire some units cheap when it goes down after XD to make up for shortfall.

[Greenrookie]

Although IR mentioned that they are confidence of filling up the tenancy.
I felt the price paid is not low to justify the 50% tenancy. They are paying full price for future rental growth that is subjected to risk, how wise can that be?

If there is nothing compelling to buy, dun buy, they sound as if its the sale of the century, cannot wait, quickly issue placement and grab, but the sums does not add up.

The yield taking the medium rent at Chai Seng area is only
2.5% yield for distribution
3.3% yield for NPI.

You may mutliple by 2 to assume full occupancy, but taking such a big risk by paying full for such a yield definitely does not come across to me as value hunting.

[cfa]

Now too many industrial buildings chasing after very few tenants, confident to fill up empty space ? Maybe lower rents.

[Singapore_guru]

The property was the biggest sale & leaseback opportunity to
hit the market in Q3 & Sabana needed something to buy to prop up DPU due to the looming vacancy & negative reversions that will arise once the master leases expire

There is no other reason to buy it...

It's a good time to be a vendor with these 'managers' around!

[NTL]

If the sentiment is bad, then the price of Sabana is likely to fall big after it gone XD? Maybe can see it hit sub-$1 again soon.