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Sabana REIT: Acquiring 21 Joo Koon Crescent.

Thursday, September 29, 2011

Sabana REIT is recently on an acquisition spree. Today, it announced the proposed acquisition of 21 Joo Koon Crescent. With this latest acquisition which will be funded fully by debt, its gearing level will bump up to 35%.

Property: 21 Joo Koon Crescent.
Consideration: S$20.274m.
Remaining lease: About 43 years.

If all its recent proposed debt funded acquisitions should be successfully carried out, it is reasonable to expect rather much higher distributable income starting 2012 which would bump up DPU, of course.

However, with pro forma gearing level at 35%, the REIT could possibly resort to some equity fund raising for future proposed acquisitions.

I am still sanguine about Sabana REIT's numbers and I will accumulate if there should be any weakness in its unit price.

Read announcement here.


Hwang said...

Not too comfortable with Sabana now that its gearing has gone above Cambridge.

But out of curiosity, given that Sabana already yields 10%, how can it further acquire buildings that are yield accretive? Looks like a tough job to me.

Daryl said...

Hi AK71,

I managed to grab sabana whn it touched 0.86 yesterday.So what price will u buy again??

Marti said...

Seems that a lot of REITs are having weaknesses in the past 2 weeks. Suntec for example has lost a lot of ground.

AK71 said...

Hi Hwang,

Higher gearing is not necessarily a bad thing. If the REIT is able to generate higher DPU for unitholders, I am happy. :)

Sabana REIT's distribution yield is about 10% now but with the acquisitions funded by debt, the number of units in issue will stay the same while distributable income increases. So, DPU will go up and distribution yield will also go up if the unit price remains at the current level.

Now, if we are talking about whether the acquisitions are NPI yield accretive, that is something else altogether. ;)

AK71 said...

Hi Daryl,

I would like to see its unit price retest immediate support at 83.5c. If that holds firm, I would like to add to my long position at around that price. That's the plan anyway. ;)

AK71 said...

Hi Marti,

I am not sanguine about office space rentals which Suntec REIT has a big exposure too. I won't add to my investment in Suntec REIT for the time being. :)

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