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Offer of 46.5c per unit for Sabana REIT by Volare Group.

Friday, January 20, 2023

This blog is in response to a reader's comment on Sabana REIT being taken over by a substantial shareholder.

I was replying to the reader's comment but it got pretty long.

So, I am publishing the reply as a blog instead and more people can eavesdrop as I talk to myself.

AK talks to himself:

It seems that Volare Group isn't buying the entire REIT.

Just a partial offer for 10% of the REIT at 46.5c a unit.

It is at a rather big discount to Sabana REIT's NAV but, given the much higher risk free rate today, it is probably not too bad a price.

I remember blogging about what I thought a fair price might be for a buyer to offer for Sabana REIT.

That was in relation to the low ball offer made by ESR REIT at the time.

I suggested a price of 48c a unit.

46.5c isn't too far off and back when I suggested 48c a unit, interest rate was way lower too.

For anyone who is interested, you will find my take on the matter in the following blog:

4Q 2020 passive income.

The fact that Volare Group is going to pay 46.5c per unit in today's high interest rate environment for Sabana REIT supports the argument that ESR was really trying get Sabana REIT for a song back in 2020.

Shame on ESR.

Shame on all the people who said it was a good deal and that Sabana REIT's minority shareholders should accept the scheme.

Yes, that's what they called it.

A scheme.

So scheming.

This offer by Volare Group is an affirmation of Sabana REIT's attractiveness as an investment for income even in today's environment.

Most of my investment in Sabana REIT, around 80%, was made at 35c a unit with the balance made up of a small legacy position and also around 15% added more recently.

So, if the REIT should be 100% taken over at an offer price of 46.5c a unit, I suppose it would not be a bad outcome for me.

To be quite honest, however, I wouldn't be celebrating.

It would most likely be a bitter sweet moment as it would remind me of Saizen REIT, Croesus Retail Trust, Accordia Golf Trust and Religare Health Trust.

All of them were pretty good investments for income with my entry prices but I was forced to take the capital gains as they were all delisted at one point or another.

I am still keen on keeping Sabana REIT as an investment for income.

I don't want to have to look for replacement investments for income. 

After having spent too much time in 2022 reallocating resources, I am looking forward to being lazier in 2023.

Largest investments updated.


xsw05 said...

Land lease tenure for Sabana seems to be short. Only about 45years

AK71 said...

Hi xsw05,

That is an issue all Industrial S-REITs with a Singapore focus has.

So, investing in such REITs, we have to demand a higher distribution yield.

It is similar to how I increased my investment in AIMS AMP Capital Industrial REIT (now AIMS APAC REIT) significantly during the GFC.

That investment has been free of cost for some time now and it is still generating an income for me.

Entry price matters. :)

garudadri said...

Dear AK
Happy new year
I agree with the point you make. I have a small holding at roughly 42 cents and I bought only a couple of months ago. This is worth at least 50 cents, if not more. Even otherwise, the distribution expected at circa 6-7% yield, make it worth holding. As this is a partial offer, that too for only up to 10% of the units, it is less likely to be followed up with an increased offer price
The institutional investor is trying to buy on the cheap and they may succeed, if retail small investors plump for small gains
The most important question that needs a convincing answer is - What would you do with the realized capital gains? To me, there is no convincing alternative, unless we hold on and deploy later if the market gives us a chance by say buying the banks at circa 5-6% yields. This means around 10-15% down from current prices
I might wait this out and hold on. If the rates start going down, there is every chance that this REIT might be able to increase distributions and the market price will go higher. Can have the proverbial cake and still eat it
Maybe I am sounding too optimistic here
Warm regards

AK71 said...

Hi Garudadri,

Happy New Year! :D

I have experienced the headache of having to redeploy a lot of money from forced divestments before and it is something I would gladly avoid, if given the choice.

At least Volare Group is unlike a low baller we all know.

Their offer is pretty decent and it is never wrong to take profit for those who wish to do it.

As an investor for income, capital gain is mostly icing on the cake as I am more interested in the cake itself. ;p

2023 is off to a good start but I somewhat wary of the rest of the year.

Just hope that whatever I have in place will deliver satisfactory results. :)

Winnie said...

I was notified by the custodian on a corporate action event relating to this. Looks like we can opt to sell our shares at0.465 cents? But if they are only intending to acquire 10%, how will it be decided whose option to sell will be successful?
Will you to opting to sell or keep?


AK71 said...

Hi Winnie,

I don't know how they are going to do it too.

They could take in all the applications and on closing day decide what to do.

A fair approach would be to allocate pro rata if the total application exceeds the 10% which the group has offered to buy.

I am just making a guess, of course.

I am holding on to my investment for income as I believe Sabana REIT has a lot more value which can be unlocked, assuming the manager does not do anything stupid. :)

Cory said...

Sabana result is out. For them to delay reporting upon takeover 10% offer, and then announced -7% dpu reduction seems a little concern due to rate increase which is still not over. Is it possible due to higher retention too ? Maybe there is no connection.

AK71 said...

"Sabana Reit H2 DPU falls 7% to S$0.0146 on higher interest expenses."

That's the news headline.

Unlike IREIT Global, Sabana REIT does not have 100% interest rate hedge in place.

If I remember correctly, only 75% of Sabana REIT's borrowings are on fixed rates.

So, a lower DPU is unfortunate but it is not unexpected.

Winnie said...

Thanks AK for the reply.

AK71 said...

Hi Winnie,

Hey, no problem.

Lacking insider knowledge, your guess is as good as mine, of course. :)

ZHANG Zheng said...

Do you have any thoughts on the proposal from Quarz Capital ASIA (Singapore) Pte. Ltd. about internalisation of SABANA REIT's Manager? Quarz demands a EGM to pass the resolution...Thank you!

AK71 said...

Hi Zhang Zheng,

Well, if Quarz is successful, then, Sabana REIT would be the second S-REIT to have an internal manager after the delisted Croesus Retail Trust.

Having an internal manager is a good idea because it leads to cost savings and a better alignment of interest with shareholders.

However, shareholder have to be prepared to pay a price to buy out the external manager.

So, for example, shareholders of Croesus Retail Trust had to cough up more money to do this back in 2016.

See: 2016 passive income from non-REITs (part 2).

It is unlikely that the external manager would exit unless paid a high price.

Personally, as a retiree with limited resources, I don't really want to cough up more money.

As long as the REIT is financially sound and generates a meaningful income for me, I am happy enough.

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