Thursday, October 17, 2013

My thoughts on Sabana Q3 results



Sabana's has just added a few items that will displeased investors.

1) QoQ distribution fall

2) Only 1 master lease to be renewed. Are there is no news which of the five properties are renewed.

My thoughts:

1) I still believe the 233058sft of NLA freed up are existing space.

When the Reit IPO, the NLA is 2636560 sq ft, but sub-tenants increased from 92 to 99 in 2 quarters. Where does the 7 tenants get the space?

When Sabana went on acquisitions spree in 2011, the 5 new buildings added 30 sub tenants, and 1 quarter later, the number of sub-tenants further increased by 10 while the NLA stay constant at 3165643 sq ft.  Where does the 17 tenants find the space?

1 master tenant will be renewed, and the NLA freed up is only reduced by 7000 square feet, when the smallest building has about 83K GFA.

Lastly, there is no fall in the number of sub-tenants when the figure on NLA freed up is proposed.

2) Lorong Chuan and 200 Pandan have the highest number of sub-tenants, 27 and 14 from IPO prospectus, but has most probably increased the number of sub-tenants, and these 2 buildings has no rental revision clause built into it. The master-tenant should be getting a good deal, why have they not renewed the master lease? There is only 2 possibilities. One: Sabana's terms are too harsh, and the cost savings from reverting back to single tenant might make more sense. Two: They intend to move out after 25 Nov. If it is situation two, then impact on distribution will be significant, and it will also mean that Sabana's management is downright dishonest. With only slightly more than 1 month to go before 25 November, Sabana would have gotten the news of non-renewal by their master tenant. No price will be low enough to justify such sneaky management style. But if its situation 1, then maybe we could see some rental revision going forward.

I would stay put with Sabana for the time being. I will need 1 more quarter to know if Sabana is really a rotten apple, or if it is  a apple of lower quality, but still edible.

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