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Sabana REIT: Safe to buy now?

Someone who managed to get some units of Sabana REIT at IPO asked me if it is safe to buy more units of the REIT now? Before the counter announced its first income distribution of 3.04c, I blogged about how I felt Sabana REIT was a great investment then.

Of course, there were nay sayers and people who told me I was wrong. There were also many who got in at the REIT's IPO and were burnt, refusing to look at the REIT anymore. There was also a friend who refused to be vested in the REIT simply because it is Shariah compliant. Now, that really boggles the mind but I suppose there is no accounting for such things.

Before I drift off too much in my discourse, back to the original question. Answer: I don't know if it is safe to buy more units of the REIT now. How's that for an answer? People keep asking me for absolutes and assurances. Well, they will keep getting disappointed.

Fundamentally, Sabana REIT is likely to continue doing well. Its numbers are strong and future income distributions over the next few quarters are likely to remain in line with forecast, everything else remaining constant. Even at today's high of 94.5c/unit, the REIT would still be trading at a discount to its NAV/unit of 98c. Distribution yield is 9.32% at 94.5c/unit with an annual DPU of 8.81c.

Technically, it is clear that Sabana REIT has seen its bottom. Price has been rising and seems to have hit resistance at 94.5c. Does it mean that price would go back down from here? No but if it does, the immediate support is at 93.5c (20dMA). This is followed by 92.5c (50dMA) and 92c (many times tested candlestick support). In the last session, it closed at 93.5c.

On the weekly chart, it is interesting to see that the Bollinger Bands are in the early stages of a squeeze. With unit price rising steadily in the past few weeks and staying above the 20wMA, chances that price could go higher in the coming weeks are fairly good. I have an immediate target of 95.5c, followed by 96.5c in case price moves higher.

A reader asked me for my estimate on the fair value for the REIT, seeing how the fair value I ascribed to First REIT some time back has come to pass. For a smallish REIT such as this, I expect an 8% distribution yield to be fair and that would, in turn, suggest a fair value of $1.10/unit for the REIT. Now, before you get too excited, that's only what I feel the fair value is. It is, by no means, the Gospel truth.

If Sabana REIT were to retest supports at 92.5c and 92c, I would probably be buying more. Good luck to all vested.

Related post:
Sabana REIT: DPU of 3.04c.
First REIT: XR and fair value.