Saturday, November 27, 2010

Sabana REIT -- Some Quick Thoughts

Sabana REIT debuted yesterday below it's IPO price of $1.05.

I had initially considered buying it at $1, but some considerations stopped me from doing so. From my sources that I looked through, this is the details:

1) Gearing: 26.5%
2) NAV: 99c
3) 99% space occupied.

4) Shar'iah Compliant
5) Dividend yield: 8+%
6) Sponsor: FreightLinks (owning 4.3% now)

What stopped me from buying:

1) Freightlinks isn't a very strong sponsor in my opinion. Their share price has been hovering on the low end. One of my criteria is to have a strong sponsor for REITs, although there was an exception when buying Saizen REIT.

2) It's an industrial REIT. For 8% yield, it would be better to focus on AIMSAMPIREIT, which has (i) a stronger sponsor in my opinion, (ii) higher percentage yield and (iii) not restricted by any policy, i.e. Shar'iah Compliant.

3) Shar'iah Compliant means Sabana REIT will have restrictions in terms of tenants, and might pose a problem as they have to donate profits from non-Shar'iah Compliant tenants.

4) It's still above NAV of 99c. The share price is now near the NAV.

For Keppel Green Trust (KGT), the few considerations above exists too. I did buy KGT near NAV with my average price of $1.11 vs the NAV of $1.15. However, KGT has a very strong sponsor, and is in a very defensive industry of power generation and water desalination. I had initially wondered if this is a ploy by Keppel Corp to unload their units after reading a fellow investment blogger's blog post, and this was a reason why I hesitated so long when KGT was trading near $1. However, after some longer considerations, I decided to go into it for a safer play because of the zero debt nature of KGT. As a business trust, KGT could likely leverage up (of course with a drop in NAV) and extend their lease on their current assets.

For Sabana, I can't help but wonder too if it's unloading its assets when the market looks good at an inflated price. Compared to Mapletree Industrial Trust where it's sponsor owns >30% of the REIT, CWT owning 12.2% and ARA owning 1.9% of Cache Logistics Trust, Freightlinks only owns 4.3% of Sabana REIT.

One should also bear in mind that NAV depends on the valuations of the underlying assets. In a bull economy, property valuations rise, and along with it, the NAV. In a bearish economy, the reverse could happen, like what happened to First Ship Lease Trust's LTV ratio. While NAV is a consideration when buying REITs for me, it is not the ultimate tool used for making the decision.

Previously, I have written a little on my criteria for selecting REITs:
Intro to REITs Investment

Perhaps I'm wrong that Freightlinks isn't a strong sponsor, but before I'm sure of it, I don't think I will put my monies into Sabana yet. Other than for a quick punt. :x


  1. Hi, you have really done in depth analysis on the underlying NAV and sponsor postion.
    It's better to rather be prudent than going too risky for investment decisions.

    I think for the VTL ratio mentioned, that should be Rickmers right?

  2. Hi,

    I agree wif ur analysis. I also dun feel comfortable with this "Syariah Compliant" rule. Not every IPO is attractive.

  3. Hi 风隐,

    I did not really do an in-depth analysis, but rely more on secondary reports before forming my own judgment. The VTL ratio includes both Rickmers.

  4. Hi Dividends Warrior,

    thanks for agreeing. It might be good for a quick trade, but I'm not comfortable with Sabana for the long run. Waiting to see Mapletree Commercial Trust.


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