Thursday, October 23, 2014

Comparison of industrial Reits Part 1

I will be comparing Sabana and Cambridge Reit in this post.

Both are smaller reits with weaker sponsors.

Sabana and Cambridge has similar Master Lease to Multi-tenant mix.

Sabana is 59% to 41%

Cambridge is 56.5% to 43.5%

Theoretically, Sabana with its higher Master Tenant Lease, should have a lower operating expenses. But given the difference in insignificant, lets not be too harsh.

Cambridge's NPI to revenue is 78%

Sabana's NPI to revenue is 72%

Cambridge managed "renewed approx 300,000 sq ft of leases in 3Q2014, amounting to 1.6 million sq ft of leases YTD2014 with positive rental reversion", I cannot find similar statements in Sabana's presentation. Maple is enjoying positive rental reversion too, although it might not be in the same league. Sabana's sub-tenants have been in a increasing trend, although it is scant console to anyone with falling distribution, but it provide hope. That hope is not very hopeful now, with sub-tenants reducing for the first time. (only 1 la, no alarm, but if you are thinking they are going to fill it up quickly... ...)

Coincidentally, Both have Gross revenue of 25 mio, but Sabana operating expenses is 2 mio more than Cambridge despite Cambridge having more than twice number of buildings to manage.  Do not tell me economical of scale, given gross revenue is the same, if anything, concentration of revenue in one building should reap economic of scale, just like the shipping companies are building bigger and bigger ship to bring down cost per container.

Both have weak refinancing schedule, with refinacing spread out over 5 years for Sabana, and effectively 3 years for Cambridge, with 2016 having a particularly high sum of loans due to renewal. If Cambridge can break down that loan over more years, it will have a more appealing profile. Both are unable to use 1 year of NPI to offset most years of refinacing. (Unlike big boys like Maple Industrial and Ascendas Industrial)

Sabana all in cost of loans is 4.1%, whereas Cambridge is 3.69%

Sabana has 2 Master leases under negotiation and 1 already concluded to be converted into muti-tenants.

I wonder what Tong Jingguan see in Sabana?

Maybe the Changi Warehouse purchase will be a good idea? Since it is 100% occupied, but there is no info and when the Master lease will expire.

I will compare the big boys, Maple and Ascendas when Ascendas announced its results later.




7 comments:

  1. Hi SI,

    Thanks for the in-depth comparison between Sabana and Cambridge.

    I didn't look into details, but I am somewhat biased against Sabana. Haven't managed to put a finger to the reason. Will investigate more in due time.

    ReplyDelete
    Replies
    1. Hi S-reit System Investor,

      look at Mapletree too. CHeers

      Delete
  2. Hi SI,

    It seems to me Tong Jingguan has vested in quite a number of REITS recently. It also appears to me he has avoided the big boys where there are strong sponsors behind.

    Much food for thought. Just wondering privately in my head, not implying anything :)

    ReplyDelete
    Replies
    1. Hi Solace,

      yup... weird, Lippomall, Viva industrial, Sabana. It is supporting Sabana shares price by doing some share purchases, I did not follow Sabana as closely now.

      Lippomall still has a Indonesia consumer growth story, and currency headwinds is hardly management's fault. Although the cost of financing is really high for lippomall...

      Viva has exposure to business park so it complement what Sabana does not have.

      He is waiting for a fire-sale to buy these assets on the cheap??? Just speculating too LOL, add oil to fire, add salt add vingear

      Delete
  3. I will stay away from these 2 REITs with a 10 foot pole. Their yield may be higher than other industrial REITs, due to the risk involved.
    My main reason is their management, sponsor and the size of their portfolio.
    Without sponsor, they can only get new property by acquire or build their own.
    With 10% of portfolio rule under MAS, they are simply out of the developing option.

    ReplyDelete
    Replies
    1. Hi Reits explorer,

      The weird thing is, their yield is hardly any higher than Acendas or Maple. Sabana used to trade at 9-10% yield recently (1 year ago...)

      Now, just 7 % and with worsening outlook.

      Seems like yield is not the only valuation metric to look at, assets does matter.

      Or it is just a matter of time?

      I think the industrial lease is still long enough to be milk and depending on management track records, it is possible to milk it and sell it years later at break even or even at a profits, which is what ascendas has done.

      so there is constant renewal.

      However, I wonder why asset value matter so much in reits?
      1) Like you say, the lease is shorter,
      2) And all these assets are leveraged, you do not really owned these assets, you simply milk them

      Anyone Mr market has it own rules

      Delete
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