Sabana Shari'ah REIT

[Nick]

I think most industrial properties are cyclical in terms of asset valuation and rental income. It is not a bad asset class per se but its volatility will have to be compensated with higher yield. Portfolio diversification is the key difference between A-REIT and the rest. Cache is the least diversified...CWT is the only tenant. I don't think they are well-liked locally though.

[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?

Generally, when units are selling above NAV, the yield is low. This makes it easy to make a yield-accretive acquisition - you issue units yielding 4% for cash to buy an asset yielding 5%. DPU goes up and everyone is happy.

The converse is true when units are selling below NAV; the yield is high. If you issue units yielding 5% for cash to buy an asset yielding 4%, the transaction is yield-negative i.e. DPU goes down. Investors will not normally support such a transaction except under duress.

Note that the test is relative yield rather than premium or discount to NAV. You could issue units at 50% of NAV, yielding 10%, to buy an asset yielding 15%, and everyone would be quite happy.

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?

IMO the more pertinent reason would be the dilution of NAV if units are issued below NAV. Conversely, issuing above NAV would instead beef up its balance sheets and increase the average assets available per share. That naturally must be a good thing. EPS would decrease regardless of the issue price, so obviously its better to obtain more cash using the same number of shares being issued, ceteris paribus. Same applies for ROE, thus logically cash calls should only made if one expects the net income to increase substantially thereafter. Assuming one needs to raise cash, then its a natural choice to raise at as high a price as possible since the other results are indifferent.

Rights issues and private placements are rarely made below the prevailing share price simply because it would be difficult to attract takers if otherwise. In the same way the comparison of current yield versus a prospective yield-accretive acquisition is meant to make it easier to swallow for existing shareholders. If we assume share price to be equal to NAV at the point of acquisition, then it would mean the target asset should naturally be yielding more than the existing yield for the above statement to hold true.

Another implicit benefit I can think of with raising capital above NAV especially with private placements, is the positive message it brings to investors. In cases where strategic partners for instance are willing to cough up an amount greater than what is available easily via open market purchases, in order to obtain a substantial stake, one cannot help but think towards the better cause. This will certainly work in uplifting perceptions surrounding the company.

thanks to both for explaining

[Musicwhiz]

Apr 14, 2011
Sabana Reit's chief financial officer quits

THE chief financial officer (CFO) of Sabana Shari'ah Compliant Industrial Reit has resigned less than five months after the firm made its share market debut.

The Reit manager said yesterday that Mr Eric Pascal, 47, had left to pursue personal interests. He will be replaced by MsTan Chiew Kian, 38.

'The board would like to express its appreciation to Mr Pascal for his contributions during his term as chief financial officer,' said a short statement by Sabana after markets closed yesterday.

Mr Pascal joined Sabana in May last year in the lead-up to the Reit's listing on Nov 26.

The company's listing prospectus stated that he had more than 22 years of experience in accounting, treasury, asset and liability management, debt capital markets and finance.

His replacement, Ms Tan, was CFO of Singapore Medical Group from February 2008 until last month. Before that, she was CFO at Sembawang Kimtrans. She also has experience working at CapitaLand Commercial.

Her responsibilities at Sabana include applying capital management strategy, including tax and treasury matters, as well as finance and accounting matters. She will also oversee the Reit's fund management activities and implementation of its short- and medium-term business plans.

[tonylim]

Maiden Results (1)

• Distribution Per Unit (“DPU”) of 3.04 cents for the period from 26
November 2010 to 31 March 2011

• Annualised DPU of 8.81 cents exceeds forecast by 2.1%

• Net Property Income of S$23.0 million is in line with IPO forecast

• Sabana on track to deliver the forecast DPU as announced in its IPO propectus

[Musicwhiz]

Business Times - 05 May 2011

Sabana kindles Gulf interest in Islamic Reits

Dubai aims for first Reit listing within a year, two UAE firms plan offers in M'sia

(JAKARTA) Persian Gulf companies are planning their first syariah-compliant real-estate investment trusts, after shares in Singapore's debut offering recovered from the lowest level since it was started in November.

The city-state's Sabana Shari'ah Compliant Industrial Reit has advanced 2.2 per cent to 94 Singapore cents since the shares reached a low of 92 cents on March 31. The initial offering price was S$1.05. The company said on April 27 it would distribute more income to shareholders than originally planned.

Dubai is aiming to list its Reit on the local exchange within a year, while two United Arab Emirates companies plan offerings in Malaysia, which pioneered the industry in 2006.

Asia may see at least one new Islamic property trust listing this year as funds seek assets that comply with Islam's ban on receiving interest or investing in casinos and bars, said HSBC Amanah, the syariah-compliant unit of Europe's largest bank.

'We can expect investments in trusts generally to see more activity over the coming months,' Kuala Lumpur-based Oz Ahmed, associate director of wholesale banking at HSBC Amanah, said in an interview on Tuesday. 'The market should expect another syariah-compliant trust in real estate, and quite a lot of pipeline, discussions and increased interest across this industry.'

Singapore's Sabana, the world's biggest publicly traded Islamic Reit, is the republic's sole trust complying with religious principles. Malaysia has three listed syariah-compliant vehicles. Malaysia's 14 Reits, which include Islamic and non-Islamic, have a combined market worth of US$3.4 billion, or 12 per cent of Singapore's US$29.3 billion, according to a March 17 report by property consultant CB Richard Ellis.

The city-state's 'developed' Reit market may encourage more Islamic issuance, Pratik Burman Ray, a senior property analyst at HSBC Securities Singapore Pte, said on April 15. Industrial property prices in Singapore will probably increase 5 per cent to 8 per cent this year, he said.

'Singapore has a far more sophisticated regulatory framework for Reits and that naturally puts the market ahead of the rest,' said Mr Ray. 'If you want to attract Middle East investors, you have to offer size and Singapore has that.'

Sabana, which invests in properties such as warehouses and high-technology office space, raised S$664.4 million from the November initial offering. It had S$19.3 million in income that can be distributed to shareholders in the period Nov 26 to March 31, 2 per cent more than planned, the company said on April 27.

Emirates Reit, Dubai's first Islamic real-estate investment trust, was established in November and may be publicly traded on Nasdaq Dubai, Marwan Ahmad Lutfi, deputy chief executive officer at the Dubai International Financial Centre Authority, said on April 10.

Two developers from the UAE are planning to list Islamic Reits worth RM2 billion (S$826 million) in Malaysia this year, Raja Teh Maimunah, global head of Islamic markets at Bursa Malaysia Bhd, said on Feb 23.

In an Islamic Reit, payments to investors are based on rental income or dividends. Syariah-compliant trusts prohibit income from properties involved in gambling, financial services based on interest payments, hotels and bars.

'Reits resonate well with Islamic finance because they're backed by underlying assets,' said HSBC Amanah's Oz. 'There's an element of risk sharing because investors are taking a risk on the portfolio of assets.'

Malaysia's Islamic Reits had a market value of RM2.3 billion at the end of 2010, according to an e-mailed reply to questions from Bursa Malaysia, the stock exchange regulator.

'Bursa Malaysia has received interest from foreign issuers to list their Reits, including Islamic Reits here,' the regulator said. 'Any foreign assets seeking listing on Bursa Malaysia will have to go through a due diligence process and assessment by the regulators prior to approval.'

Malaysia is the world's biggest market for Islamic bonds, which pay returns on assets to comply with the religion's ban on interest. Sales of Malaysian-currency sukuk rose to RM11.4 billion this year, compared with RM6.7 billion in the same period last year, according to data compiled by Bloomberg.

Global issuance increased to US$5.2 billion, from US$4.4 billion in the same period last year.

'Malaysia is a more regulated and mature market, and from an investor perspective, it's one of the fully Islamic integrated markets in the world,' Riad Saad, Islamic product manager at the Treasury and Investment Department of Abu Dhabi Commercial Bank PJSC, said in an interview on April 19. 'There is government support and liquidity, and it has all the capabilities of making Reit launches successful.'

Syariah-compliant bonds returned 4.4 per cent this year, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index. Debt in developing markets gained 2.5 per cent, JPMorgan Chase & Co's EMBI Global Diversified Index shows.

The difference between the average yield for sukuk and the London interbank offered was little changed at 242 basis points on Tuesday, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index.

Average yields fell to 4.14 per cent, the lowest since June 2005. The spread between Malaysia's dollar sukuk and the Dubai Department of Finance's 6.396 per cent note due November 2014 narrowed three basis points to 235, Bloomberg data show.

Malaysia can play catch up with Singapore by 'playing its syariah card,' said Kuala Lumpur-based Stewart Labrooy, chief executive officer at Axis Real Estate Investment Trust. Axis-Reit, which sold 98.4 million shares at RM1.25 when it listed on the Malaysian stock exchange in August 2005, converted to an Islamic property trust in 2008.

The price of Axis-Reit rose 0.4 per cent to RM2.38 this year as of 4:17 pm in Singapore, according to Bloomberg data. The company will list a syariah-compliant property trust valued at more than RM3 billion, Reuters reported on its website on March 11, citing three unidentified people familiar with the matter. Mr Labrooy declined to comment on the report when contacted by Bloomberg.

'People wanting to invest in syariah products in Malaysia will have a very high degree of comfort in investing in Islamic Reits here as there is a high degree of transparency, syariah governance and compliance,' Mr Labrooy said. He forecasts growth in industrial property prices in Malaysia of 5 per cent to 10 per cent this year.

The Al-'Aqar KPJ Reit, listed on Malaysia's bourse since August 2006, was the first publicly traded Islamic property trust in Asia. Al-'Aqar, managed by hospital operator KPJ Healthcare Bhd, raised RM179.3 million from the share sale. The price climbed 2.7 per cent to RM1.15 this year, according to data compiled by Bloomberg.

Al-Hadharah Boustead Reit, listed on the local stock exchange on Feb 8, 2007, raised RM229.7 million through an initial offering. The shares dropped 1.4 per cent in 2011 to RM1.42. The trust owns and invests mainly in plantation assets in Malaysia including palm oil.

Malaysia's 'focused' approach to its Islamic finance industry will offer the nation an advantage in luring more listings from foreign companies, including those from the Persian Gulf, Bernard Ching, the head of research at Kuala Lumpur-based brokerage services company ECM Libra Capital Sdn Bhd, said in an interview on April 19.

'Malaysia has the infrastructure in place, whether it is financing, the investor base or expertise, including syariah advisory,' he said. -- Bloomberg

[Nick]

I initiated a small position in this industrial REIT today. Let's see how it goes moving forward. I am attracted by its strong balance sheet which gives it room to grow through acquisitions. Its gearing of 25% backed by over $40 million of cash makes it one of the lowest geared REIT with local assets. I don't think the sponsor will play a crucial role in M&A near term either since it needs to redevelop the bulk of its assets. Third party acquisitions and sale-leaseback schemes will be the theme for the next 2 years. But as always, the quality of the Management will be determined by the deals it makes and the performance of its assets - that remains to be seen since it is a new REIT. Unless I am mistaken, it can also venture into non-industrial assets ?

[tanjm]

Its a bit concentrated in its tenants and lease expiry profile if I remember correctly.

Also, its headline yield is based on 100% payout which isn't sustainable.

[tonylim]

Many reits here pay out 100%.

[Nick]

Its a bit concentrated in its tenants and lease expiry profile if I remember correctly.

Also, its headline yield is based on 100% payout which isn't sustainable.

All local REITs maintain a 100% payout of its distributable income. The law requires a minimum of 90% payout ratio in order to be exempted from income tax.

It is true that 60% of its lease expires on 2013. But at the moment, the bulk of its properties are on master lease agreements. There are underlying subleases which Sabana will take control if it doesn't extend the master lease contract. I believe this is what AIMS AMP Reit is doing now in order to increase rent roll diversification. At the moment, the largest tenant are subsidiaries of CDL Holdings (39.4%) and its sponsor Freight-links (22.6%). With future M&A activities, I expect the rent roll to be further diversified.

Ultimately, I am only putting a small amount of my portfolio into this until the Management quality is proven. Would love to hear forummers view about this REIT in case I may have missed out something.

(Vested)

[Drizzt]

i believe this is a reit that has risks but at 9.2% yield makes up a whole lot for the risks. technically the price of 91 cents is important as a breach below could present a new downtrend