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Sabana REIT: Sell at 46.5c to Volare Group?

Monday, February 20, 2023

One month ago, I blogged about the offer of 46.5c a unit by Volare Group to increase their stake in Sabana REIT by another 10%.

I have looked at the offer documents yesterday and it seems that those who decide to offer some or all of their investment in Sabana REIT for sale will get 45.04c a unit instead of 46.5c.

The very first section of the offer documents explains what "you will get for your units."

"S$0.465 in cash - S$0.0146 distribution = S$0.4504."

So, it seems to me that Volare Group is using the incoming income distribution from the REIT to help fund their purchase.

Is this offer still attractive?

Well, there are many ways to look at this and if we are to only look at the numbers, netting 45.04c a unit is still pretty attractive.

We don't have to incur any brokerage fee.

Sabana REIT was trading at 42.5c a unit the last I checked.

So, we could offer to sell all or some of our investment to Volare Group and buy an equivalent number of units from Mr. Market if we wished to retain the same level of exposure to the REIT.

This is an arbitrage opportunity to make some pocket money, if we want to take advantage of it.

There is risk, however.

The offer will only succeed if 10% or more of Sabana REIT's units are tendered.

If the offer should fail, this arbitrage strategy would saddle us with more units of Sabana REIT than what we started out with.

So, think carefully.

If I were to do this, I would remind myself of a couple of points.

1. Use only money which has been earmarked for investing for income.

2. Do not buy more Sabana REIT units than what I am comfortable holding in total in case the offer fails.

Personally, I won't be doing it.

Don't I want to make some extra pocket money?

Well, it isn't going to be that significant a gain unless I take a huge gamble.

A huge gamble?

A difference of 2.5c a unit = $25 per 1000 units.

So, I would have to buy some 100,000 units from Mr. Market while tendering the same amount to Volare Group if I wished to make $2,500.

I would have to fork out $42,500 before fees.

I don't have that money in my war chest now and even if I have that money, I would not do it because I am happy with how my portfolio looks now.

If I had a smaller investment in Sabana REIT, I might do it if I had the money but I feel that my exposure to the REIT is appropriately sized.

Appropriately sized?

Mustn't just look at the size of my investment in Sabana REIT.

I remind myself that I already have a very large exposure to industrial REITs with AIMS APAC REIT being my largest investment in this space.

Anyway, this is just me talking to myself as usual.

If anyone is thinking of arbitrage, good luck.

Huat ah!

Offer of 46.5c per unit.


Blade Knight said...

Hi AK, good day to you. Just curious, what if more than 10% or even up to 50% of total units were offered for sales by current unit-holders to Volare Group? Will there still be excess units that Volare will not accept in such extreme scenario?

AK71 said...

Hi Blade Knight,

This is covered in point #9 in the offer document:

"If the partial offer is successful, and you tender all your units, you will receive cash for at least 10% of the units held by you as of record date.

"If you tender more than 10% of your units as at record date and if the partial offer is unconditional, you will receive cash for your additional tendered units if there are units left over from other unitholders who did not tender."

So, Volare Group might not purchase all the units tendered in the event that the partial offer is successful.

garudadri said...

Dear AK
The question that I don’t have a clear answer is simple
Why does Volare want this REIT?
Unless there is value, they would not be seeking this out. Although a 2.5 cent gain from CMP looks appealing, it is probably still undervaluing Sabana
In the event of a peak and subsequent downturn in interest rates, this REIT might touch 50 cents with an attractive locked in yield at current prices
The alternate scenario is to tender and make gains, wait it out and later on buy at say 42-43 cents. This might happen if interest rates go higher and/or the market drops for some reason
IThis will allow us to have the cake and eat it albeit later as well!
Just my thoughts
I am undecided still

AK71 said...

Hi Garudadri,

I agree that although Volare's offer of 46.5c per unit is more reasonable than ESR REIT's low ball offer, it still undervalues Sabana REIT.

To keep things simple, I am just holding on to my investment although I could change my mind if somehow I find more money playing truant somewhere.

In such an instance, I might try my hand at arbitrage for some pocket money. ;p

SgFire said...


When is the voting dateline? I received a notice from my broker but it says no action for now.

AK71 said...

Hi SgFire,

On the offer document which they sent to me, it says acceptance of the offer must be received by 5.30pm on 10 March 2023.

So, if you want to tender your units partially or fully, you have to fill out the form and mail it back latest in the week of 6 March to be safe.

SgFire said...

Hi Ak

I missed out on another notice : Election Period

Shareholders may begin accepting the Offer from 27 February 2023 to 8 March 2023. Further notice will be despatched when the election period is open.

Further notice will be dispatched when the election period is open.

AK71 said...

Hi SgFire,

Sounds like you are taking up the offer. :D

Better mark those dates on your calendar. ;)

SgFire said...

Hi Ak

Smart boy , just part of rebalancing act to my reits portfolio

AK71 said...

Hi SgFire,

Rebalancing sounds like what my portfolio needs too.

I am pretty sure it isn't well balanced. -.-"

Then, I remind myself that if it isn't broken, why fix it?

Lazy lah. ;p

MK said...

Hi AK, what are your views on the ongoing tussle between ESR and Quarz on the voting out of the manager and the internalization of the manager? How will you be voting on this at the coming EGM?

AK71 said...

Hi MK,

For sure, there are advantages to having an internal manager.

Cost savings in the long run is the main aim.

Croesus Retail Trust did this before and if you are interested, you can Google the history to find out more.

I cannot remember but I might have blogged about it since Croesus Retail Trust was one of my largest investments at one point in time.

The internal manager won't go easily because the fee they earn is good and easy money.

I am going to sit on the fence because I am not sure how much it would cost to pay ESR to convince them to let go.

Guess who would have to fork out the money in such an instance?

Crossing fingers things won't end up being a mess.

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