Monday, May 16, 2011

Bought Sabana REIT

Recently, I have added Sabana REIT to my passive income portfolio. According to REIT data (http://reitdata.com), a price of 0.905 fetches yield of about 9.7%. Attractive preposition to me if we compare all Industrial REIT.

A quick introduction - Sabana Shariah Compliant REIT is a Singapore-based REIT, established principally to invest in income-producing real estate used for industrial purpose in Asia, as well as real-estate assets, in line with Shariah investment principles.

Sabana REIT is the world's largest listed Shariah Compliant REIT and the first listed REIT to adopt stricter GCC-standard Shariah Compliance.

In addition, Sabana Shariah Compliant REIT distribution policy is to distribute 100% REIT taxable income and tax-exempt income, if any (after deduction of applicable expenses) for the period from listing date (26 Nov 2010) to 31 Dec 2012.

Distributions are made on a quarterly basis - 31 March, 30 June, 30 September, 31 December each year for the three-month period ending on each of the dates above.

Adjusted NAV is 0.98 after their first quarterly results, ending 31 March 2011. Gearing is about 24.9%. There is potential headroom for further acquisiton or asset enhancement, taking into consideration that Sabana has to maintain appropriate capital structure yet comply with Shariah investment principles.

In regards to their current portfolio, they have a diverse sub-tenant base which means there is no concentration on any trade sector, thus ensuring diversification. Collection of rental income from tenants belong to the 4 types of industrial sectors:

- High-tech industrial
- Chemical warehouse & logistics
- Warehouse & logisitcs
- General industrial


At the moment, the main bulk is high-tech industrial. I like the fact that the industries are strategically well-spread around Singapore with high occupancy rate
(14 properties, triple net master lease - 100% as of 31 March 2011); however, I feel Singapore industrial properties are too concentrated, considering that the management near term direction is to actively manage existing portfolio in Singapore to optimise asset performance. At this point of time, I guess it's still too early to come up with any hypothesis. So we will keep a watch on their future plans.

Being Shariah compliant, the REIT Manager has access to untapped equity markets, for example Bahrain or Jordan, mostly in the Middle East region. Plus the fact that their long term strategy, as quoted from the prospectus, is to aim for regional diversification - pursue opportunities throughout Asia in order to enhance the geographical spread and tenant base. In my opinion, the growth of the Islamic banking industry will help to create demand for Shariah compliant products such as Sabana REIT and thus, I hope the REIT Manager is able to capitalize on the opportunities while adhering to strict Shariah-regulated corporate governance and getting approval from the independent committee.

This comes to the point of corporate governance. Sabana REIT has to follow certain investment principles while getting approval from the Independent Shariah Committee, from financing to risk management solutions. Yes, indeed, there is an independent committee being set up while Sabana REIT has engaged Five Pillars Pte Ltd to be their Shariah Advisor. Great checks in place, we shall monitor since there are no past track records per se.

Sponsor-wise, it is Freight Links (51%). 45% stake is owned by Blackwood Investments Pte Ltd and Tarian Capital Partners 4% ownership. Although not backed by government institutions, still, Freight Links is a reputable company in the field of logistics and warehousing. There are some cornerstone investors which you can refer to Sabana REIT prospectus. Hopefully, I will like to see more Asset Management firms onboard.

In short, I like their high yield at the price of 0.905, reasonable gearing, acceptable sponsor, in the field of Shariah compliant investment environment with proper systems to follow and the stable, regular quarterly distribution payout.

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