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Sabana REIT: Innotek Limited to divest 15 million units.

Sunday, July 6, 2014

On 17 April 2014, I said that if we were to demand an 8% distribution yield from Sabana REIT, unit price would have to decline to 94c a unit. 

It seems that Mr. Market has been quite happy to accept a distribution yield of 7.16% or, perhaps, Mr. Market expects DPU to improve in the following months. Whatever the reason, Sabana REIT's unit price has been hovering at the level of $1.05.


For reasons I listed in the same blog post, I reduced my exposure to Sabana REIT substantially. With more master leases expiring by end of 2014, there is a chance that things could worsen and income could come under pressure.

The news that Innotek Limited which has 15,000,000 units of Sabana REIT is making a full divestment could send unit price of Sabana REIT declining in the coming weeks. 

Innotek Limited paid $1.05 a unit for this investment made in November 2010 and has benefitted from regular income distributions in the last 3.5 years.

Given Sabana REIT's rather lacklustre track record, Mr. Market should demand a greater premium in distribution yield from Sabana REIT compared to a blue-chip industrial S-REIT like A-REIT (6.1% yield) or even AIMS AMP Capital Industrial REIT (6.95% yield).


Indeed, the premium has always been about 2% over A-REIT's yield. So, without seeing at least an 8% distribution yield for Sabana REIT, it is unlikely that I would increase exposure to the REIT. 

Offering an 8.5% distribution yield, everything else remaining equal, would probably see me dipping my toes in the water with less trepidation. 

Of course, this could either happen with unit price declining or DPU improving. Which one is going to happen first? I don't know but I do know what I will do. As usual, ask not what will happen but what will we do if something should happen.

Related posts:
1. Sabana REIT: DPU of 1.88c.
2. Portfolio review: Unexpectedly eventful.
"In the S-REITs department, the biggest change this year to my portfolio has to be the major divestment in Sabana REIT. My current long position in the REIT is just a bit more than 10% of my investment at its largest. Whatever I have left is free of cost and will continue to generate passive income although on a much smaller scale."

4 comments:

SeeKay Go said...

Hi AK,

With current price of 0.850 and high dividend yield 8.56%. Would you think fundamentally it's attractive, and nibbling for this counter?

AK71 said...

Hi SeeKay,

You might want to read this:
What is the right price to buy into Sabana REIT?

Of course, I am just talking to myself, as usual. ;)

Alcus Trader said...

Hi AK,

It is said that "All investments are good at the right prices".

Given that recent significant decline due to the rights issue, Sabana is now trading at about $0.35.

Would you be considering to add this to your S-reit portfolio for income? Would like to hear you talking to yourself. :D

AK71 said...

Hi AT,

Some time ago, I realised that Sabana REIT has a mediocre and self serving management. I don't think leopards can change their spots.

I have a legacy position after selling most of my investment in the REIT. It is a free of cost position and I am quite happy to take part in the rights issue as I also believe that all investments are good at the right price. 25.8c a unit is probably a right price.

35c a unit? I am not so sure.

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