Sabana Shari'ah REIT

[tonylim]

Which investment is totally riskfree ?

[Drizzt]

becoming an MP?

[tanjm]

Well if you are looking at industrial reits, why not consider Cambridge Industrial Trust? Its yield is about that of Sabana REIT. Yet it is more diversified, it holds 14 mths of security deposits (so it says) and it recently refinanced all its loans for 3-5 yr tenures.

What I don't get is the almost 300 basis points difference in yield between CIT/Sabana and Ascendas REIT. Ascendas is certainly bigger, but it is equally leveraged and it hasn't had a stellar record in treating its shareholders either.

[Nick]

Well if you are looking at industrial reits, why not consider Cambridge Industrial Trust? Its yield is about that of Sabana REIT. Yet it is more diversified, it holds 14 mths of security deposits (so it says) and it recently refinanced all its loans for 3-5 yr tenures.

What I don't get is the almost 300 basis points difference in yield between CIT/Sabana and Ascendas REIT. Ascendas is certainly bigger, but it is equally leveraged and it hasn't had a stellar record in treating its shareholders either.

There is a big difference between CIT and Sabana in their gearing.

CIT
Investment Properties: $906.7 million
Total Debt: $319.1 million
Gearing: 35.2%
Cash: $70.2 million

Sabana
Investment Properties: $846.1 million
Total Debt: $215.9 million
Gearing: 25.5%
Cash: $41.5 million

Sabana has much lower gearing and so would be able to under-take M&A activities to grow the DPU further. CIT is stuck in terms of growth unless it raises more equity (which it recently did). Moreover, lower gearing means lesser risk. I am not a big fan of highly leveraged reits. Industrial REITs are generally pretty well diversified since each master lease is backed by sub-leases (not all the times though). CIT, AIMS, Cache, Sabana are small cap reits - they will trade at high yields.

Ascendas REIT benefit from size, diversification and a very strong sponsor with assets all around Asia hence the much lower yield.

REITs are rarely good long term investment unless you get it at an attractive price. My very recent investment is simply me parking cash in something which I know wouldn't raise equity or go bust in the next 3 months ! If the Management performs well, then it goes into the long term portfolio since there is plenty of room for DPU growth (and hence capital gains).

[cif5000]

Well if you are looking at industrial reits, why not consider Cambridge Industrial Trust? Its yield is about that of Sabana REIT. Yet it is more diversified, it holds 14 mths of security deposits (so it says) and it recently refinanced all its loans for 3-5 yr tenures.

What I don't get is the almost 300 basis points difference in yield between CIT/Sabana and Ascendas REIT. Ascendas is certainly bigger, but it is equally leveraged and it hasn't had a stellar record in treating its shareholders either.

If I understand correctly, A-Reit is more geared than the other 2. Sabana is the least. So if/when Sabana managed to gear up with more assets, it will improve diversification and yield.

[tanjm]

25% vs 33% gearing? its not that large a gap between Sabana and CIT with not much room with for Sabana (just 100+ million more debt to get to the same level as CIT) to achieve diversification by taking on more loans to buy assets. As things stand now, CIT is more diversified than Sabana.

---

by the way, homeowners routinely take massive leverage (4 to 1).

The difference is that homeowners generally take a long term loan with the intention of paying it off fully, while reits take shorter term loans with the intention of refinancing it. Its the refinancing risk that's the killer, not the high level of leverage per se.

---

Actually, you want diversification? Just own shares of both reits lah!

[Drizzt]

I have an alternative view. What if this REIT has zero debts and yields 7.2% instead of 9%. Would u guys like this investment if it's new acquisition is finance by rights issue?

[Musicwhiz]

Hi guys - I'm new to this forum and like the dialogues that I'm seeing from you. Good stuff!

In relation to Shariah REITs, I've heard good things about the new Axis REIT to be launched soon. Have you guys heard anything as well?

As Moderator, let me extend a warm welcome to you! You will find that Value Buddies contains very good and detailed discussions on SGX-Listed Companies, as well as Economic News, Property News and other pertinent discussions on Personal Finance and Wealth.

As for Axis REIT, could you provide more info please? (E.g. which country, asset size, asset types, projected yield etc?)

Thanks!

[piggo]

where did you get that news from?

there is an 1+b sized Axis REIT listed in malaysia for quite a number of years now... do you mean that it will list in sgx as well? or is it a completely new portfolio that they are offering?

[Nick]

I don't think it will matter to Sabana. There are already 3 small cap listed industrial reits (AIMS, CIT, Sabana) and 2 large cap industrial reits (MIT, A-REIT) with a predominantly local portfolio. Another small cap reit isn't going to make a big difference.