Monday, September 16, 2013

My fact-finding into Sabana's managment response.

After reading into the IR response, I again questioned the "wisdom" of paying full price for "future" rental collection.

If the 67 million, or 59 million without admin costs is brokered at fire-sale price, or the discounted cash flow method to value the 59 million is based of 50% occupancy, perhaps it is a wise pay. BUT is that so?

I look out data from sq foot research:(https://www.squarefoot.com.sg/ ; logged in required)

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The 22 august transaction is the Sabana's transaction, hardly look like a sale to me.

Next, I look at the medium rent in the area:

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Lets assume the medium rental of $1.5 and AMD rent 50% of the building.

SO:

1.5x12 (months in year) x 145000 (Half of NLA) = 2.61 million gross rent.

SInce they are looking for sub-tenant, so its not a triple net lease, so lets give a 0.85 margin for NPI

You will get 2.21 million.

Subtract the management fees, trustee fees and taking 1/4 of the cut (the usual amount left for distribution according to the latest quarter reports)

You will have 1.66 million left for distribution

Gross Rev Yield = 3.9%

NPI yield = 3.3%

Distribution yield = 2.5%

If the building is almost fully leased, I would say its quite a good purchase, if they managed to get it 100% lease in the near future, I would say they clear the mess that they make.

BUT, the fact is, they rushed into this acquisition, which until now, I still find it mind boggling.

1) One, it doesn't look like a sale to me.

2) If NPI yield is 4% onwards for half the building, I might still think its a good deal, as its rather difficult to find 8% yielding investment, so they work hard on their own to achieve this good yield. But at 3.3%, I do not think its such a tall order to find a fully occupy industrial building yielding 6.6%. You pay now, and subject yourself to the risk of finding tenants when industrial supply is increasing over the next few years and if things turn out as you have planned, (roll drums....)you will GET...  6.6% thereabout yield. HUH??

Obviously, I do not know what is on the management mind, but value for money is definitely one of them when rental yield is concerned. Also, I also believed in this: IF there is nothing compelling to buy, DON"T buy! Give a big discount to private investors through placement to fund a non-compelling buy, even more pissing...

IMPT NOTE:

I am complaining about the management, not the value of the counter. This is no to say Sabana Reit is Junk Grade, the high yield has lead Sabana price to rebound.

What I am saying, this is a negative in my checklist of assessing a counter, and if another better counter come along, it will not take much for me to jump ship.

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