Wednesday, April 16, 2014

Sabana Reit: Its time to say goodbye

Sabana release its Q1 results.

Q1 DPU is 1.88 cents is lower than the 2 cents that I projected.

2 cents is already 10% fall of DPU from Q4, and 20% fall in Q3.

Although Gross rent is more or less stable, the costs of converting to multi-tenants is really horrible, and out of control.

When Sabana has 100% Master leases, NPI is about 0.94 time of GPI.

I expect NPI to be 0.8-0.85 times of GPI, since more than half of its leases are still master leases, but it is 0.75 times of GPI

So, the fall is not one-off. The cost of fall is recurring. From QR:

(b) Property expenses increased by 394.4% mainly due to:

(i) Property and lease management fees incurred for the Acquisition Property;
(ii) Higher property tax, maintenance, utilities and applicable land rent expense, in line with the increase
of directly managed multi-tenanted properties from one in 1Q 2013 to six in 1Q 2014;
(iii) Higher property management fees in line with the higher revenue from 151 Lorong Chuan; and
(iv) Lease management fees being charged to the 15 properties acquired during IPO, following the expiry
of the three-year waiver period in 4Q 2013;

In line with the higher property expenses, net property income decreased by 9.2%

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With exception of (i), the rest are recurring.

All this is not the worst yet, given how badly they control "costs" of transition from Master tenants to Multi-tenants, they have master leases out for renewal again in 2014 and almost everything up for renewal in 2015.

With its "wonderful" track record, and current low yield as compared to other proven industrial reits (Acendas has yield of about 6.8%), there is nothing left anymore.

Not sure how much school fees I will pay for this, but its time to say goodbye.

Lesson?

Who says management is secondary to business? Industrial space rental business is straight forward business.

I didn't take into consideration:

(iv) Lease management fees being charged to the 15 properties acquired during IPO, following the expiry
of the three-year waiver period in 4Q 2013;

(i) is unnecessary, yes, GPI will fall even further, but NPI for Q3 andQ4 remain the same despite higher GPI from Chai Chee, so Chai Chee from whatever is a highly value destroying venture, which can't even be yield neutral. It is giving negative yield.

Good bye.

I hope readers bought it cheap. I am quite sure the price will fall very badly tomorrow.

 

 

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