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Sabana REIT: Panic selling at $1.055 a unit.

Friday, September 13, 2013

Sabana REIT announced a private placement of 40,000,000 units at $1.00 each.

See announcement: here.

This will increase the number of units in issue by 6.2%. Everything remaining equal, it would dilute the DPU by about 5.84%. However, everything will not remain equal since the money raised will go towards the purchase of a new property, 508 Chai Chee Lane, which will bump up DPU. So, the reduction in DPU from the placement is ameliorated.

See announcement: here.

The fall in unit price earlier this morning to a low of $1.055 which was a decline of some 6.3% from yesterday's closing price of $1.125 was overdone.

Indeed, if expectations of positive rental reversions are realised by November 2013, at current prices (of under $1.10 a unit), Sabana REIT looks like a pretty good investment for income. We might be counting the chicks before they are hatched, of course.

Related post:
Sabana REIT: 2Q 2013 DPU 2.4c.


Anonymous said...

Hi AK,

I am actually rather angry will the placement, they should have do a rights and I will buy more with the discount at $1. Selfish!

This is what I posted on my blog:

I am disappointed with the selfish placement, they should have done a rights issue at $1, i will definitely subscript to it.

Below is what I posted at VB forum:

Did a quick calculation.

I use the lower 2.7 million increase in distribution due to acquisition. (Refer to earlier post 274). I use the lower estimated figure.

I account for the acquisition fees of 670k already, performance fees, they are not going to get it as my final calculation of DPU after dilution is 9.5 cents. (As compared to 9.6 cents now, without acquisition.)

So net net, given I cannot participate in this discount YET, (I think market will punish this counter), we are worse off with this deal.

But then, at 1.080, yield will will be 8.7%.

So I willl keep my cool, let the price drop further and accumulate after the placements unit come into play.

At $1, yield will be 9%.

Ok, not sure angry now. BUt what the F***, issue rights la, whats the rush!!

Other numbers:
They are still 27 million short for their acquisition, they do not have 27 m in cash, so most prob still need 20 m loans. But it does not make a big difference to gearing, its within 1% point.

NOTE: Income for distribution increase is from my conservative estimates only. IF they champion and buy a property that is more than 10% vacant, then the figures will be wrong.

INVS 2.0 said...

I was about to ask your opinions on Sabana after witnessing the price at $1.08. Haha.

INVS 2.0 said...

Bough a small *test-water* quantity at $1.08 this morning. :)

INVS 2.0 said...

Following the purchase, my holdings on Sabana and AIMS are now equal. Much like your portfolio but smaller scale, maybe 1/100. :P

wee loong said...

Hi AK,

Will existing shareholders be entitled to the private placement?


Anonymous said...

at issue here is also the size of discount, as compared to other recent placements by acendas, ascott and aims etc, none has discount of more than 5%.

While I would not write off Sabana, I will now scrutinized their every moves!!

Management has disappointed me. If the new acquisition yield is even lower than my lowest estimate, I will say bye bye to this once I break even with the dividends!

AK71 said...

Hi Mike,

Woah! Strong reaction here. LOL. I used to be like that whenever I saw private placements too. ;)

Regular readers from the early days of my blog would know that I much prefer rights issues over private placements. The former allows all unit holders to participate in the enlarged capital base of the REIT.

For sure, I would buy more at $1.00a unit if I was made an offer too. Unfortunately, I am a small potato. ;p

These days I am rather more ZEN about private placements. It is more expeditious especially if the amount raised is relatively small. Of course, this does not mean I am happy about the placement. :)

Anonymous said...

haha LOL,
Pardon my language, we are Zen about different things, you are my shifu when reits are concerned.

Must go Mountains to practice.

AK71 said...

Hi INVS 2.0,

It so happens I was looking at stock prices this morning. So, I did a quick off the cuff blog about the issue. ;)

AK71 said...

Hi A,

Nope. I don't think so. :(

AK71 said...

Hi Mike,

Well, Sabana REIT doesn't have the kind of pedigree that the REITs you listed have. So, investors are likely to demand a higher return for investing in it. This is not a new development. Quite unfortunate.

To tell you the truth, until I see the management doing more AEIs and developments to max out plot ratios, I would classify Sabana REIT's management's ability as only average.

Take a deep breath and cool down. You might feel better after reading this blog of mine: Performance fees.


Dividend Warrior said...

To answer Mike.

Yes. They are indeed champion. :(

The property is only 50% occupied.

AK71 said...

Hi DW,

Why did you say that the property is only 50% occupied? You are going to give Mike a heart attack. LOL. ;p

Anonymous said...

hi DW and AK,

Yup, I read that too, so 9 cents will be the post diluted DPU.

sigh.... Well... Just a disappointment with my own judgements. There are many ways to recover from this. Loss will be minimum or a non-issue.

I thought buying a half-empty industrial building when over supply reigns defy logic. Well, they done it. Good Job.

Dividend Warrior said...

Hi AK,

I quote from the announcement.

"If the acquisition follows through, both parties will enter into a lease agreement in which Advanced Micro Devices will lease back at least 50% of the total rentable area of the property."

Maybe AMD will lease back 100% of the space. But I doubt so.....

Money Honey said...

If anyone had the hindsight of the private placement and at $1 each so investing in the stock market would be a waste of his or her talent. Sometimes by losing a battle you find a new way to win the war.

AK71 said...

Hi Mike and DW,

AMD is not what it was. Not doing so well now. They need to rationalise their operations. In all likelihood, they will not rent the whole building.

Did Sabana REIT buy the building believing that it could get higher rents from renting out to smaller tenants? This is similar to the assumption I made regarding the space which would become vacant if the expiring Master Leases were not renewed by Nov 2013.

Anyway, no point getting agitated here as I believe that the jury is still out on this one. :)

AK71 said...

Hi Money Honey,

Yes, we work with the data we have on hand. Of course, over time, we accumulate experience and more in depth knowledge of our investments. Then, hopefully, we will make better decisions. :)

Anonymous said...

Hi AK,

Not agitated la, just felt silly... haha u see why I call myself silly investor.

Jokes aside, these few issues really cast the management in rather bad light and should not be seen in isolation.

They just started a MTN, why do placement? Why not drawn down loans?

Point valid about needing a bigger discount since its a mickey mouse reit, and hence the higher returns demanded. Then, why not a rights at 5% discount?

Its more about management than money issues, I do not really like the feeling of being taken for a ride.

Lastly, AMD has mentioned they will lease back at least 50% of the building. that is fine, my point, is, given there is not incentive for them to buy for the sake of buying (performance fees will kick in only when DPU increase 10%, which I think its fair, and will gladly accept they receive this reward for adding value to unitholders), why are they slapping themselves by buying a half-vacant building. If it is half vacant, the purchase yield will be 2.5% to 4.5% at most. Hardly a prudent or value accretive purchase.

Sorry for my grumblings. All the facts point to balant disregard for unitholders.

But there is money to be made if pessimism reigns and the price become $1.

I may make money from this, but still dislike managment that take investors for a ride.

Sorry for putting in so many comments and choking up your airspace. =p

AK71 said...

Hi Mike,

Valid points, I am sure. :)

Only the management would have answers to your questions. Why not send them an email? Remember to share their response here with us, ok? ;)

For sure, all investments are good at the right prices. So, if Mr. Market should feel very depressed about this and offer an even lower unit price, I would buy more. :)

HM Shak said...

Sigh*...why they doing private placements? It is just not fair to the average people like us. Anyway its a chance to get in more at lower price.

How much lower can it go? its a fairly new counter. IPO price was $1.05 if i remember correctly.

AK71 said...

Hi HM,

How low could it go? Your guess is as good as mine. :)

If it should trade at 10% below its NAV like AIMS AMP Capital Industrial REIT was recently, I hope I will remember to buy some. ;p

INVS 2.0 said...

Hope prices can still go lower so that I can buy more. In fact, my current passive income is more than my school pocket money (quietly keeping this from parents). :D

AK71 said...

Hi INVS 2.0,

Passive income from investments > school pocket money = Financial freedom! :D

FoodieFC said...

I have sold off my sabana reit several months back. Was worried about their lease issue. Sabana still gives good dividends la, so dont worry guys =)

AK71 said...

Hi FoodieFC,

Your move to divest rewarded you well! Congratulations!

Although I blogged about the expiring leases since sometime last year, I did nothing. -.-"

INVS 2.0 said...

Because we have confidence in the management, that's why we don't sell even after hearing about the lease expires but instead, aim to buy more at lower prices? :)

But at September now and still no news about lease renewal, do raise my eyebrows abit.

AK71 said...

Hi INVS 2.0,

Well, it is too early to say if the management is competent or not. It is a very young REIT.

I invest in Sabana REIT for income and as long a the reasons which make it a good investment for income do not change, I stay invested. :)

Anonymous said...

Hi AK,

I just send you an email regarding Sabana IR reply.

Can'y post it here as its too long. =)

(I have posted it at my blog and VB forum too)

AK71 said...

Hi Mike,

Thanks for forwarding to me a copy of their reply. :)

I am most interested in this:

"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."

This will be a test for Sabana REIT's management. If they should achieve 100% occupancy, I think it would speak volumes about their level of competence. :)

Like I said, the Jury is still out on this one. ;)

Anonymous said...

After some fact finding,I still find the move unwise.

Its never wise to rush into a deal, especially a non-compelling one. They are paying in full for future rental growth. If the growth comes, we are ok,if not, we are worse off.

AK71 said...

Hi Mike,

It is never wrong to err on the side of caution, I am sure. :)

SnOOpy168 said...

anyway, they declared a special dividends to existing shareholders last Friday. XD within a few days too. Perhaps to smoother the roughed feathers a bit.

Whoever bought at 1.08 on Monday must be laughing to the bank and somebody sold without checking. I wished that I had placed the overnight order for 1.08 that I had hunched about. Too bad....

AK71 said...

Hi SnOOPy168,

Well, it isn't a special dividend. It is an advance distribution. We will get less in the next routine distribution.

SnOOpy168 said...

Opps. I thought $$$ falls from the skies as it wasn't in my calender.

Better the cash now, and let it rot in my tiny war chest (or whats left of it).

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