Wednesday, 24 November 2010

Sabana REIT

Sabana Shari'ah Compliant Industrial Reit is offering 508 million units for $1.05 each in its initial public offering (IPO). About 432.5 million units will be for large institutional investors with the remaining 75.5 million available to small investors.

The units will give a yield of 8.22 per cent for next year, based on the expected distribution of 8.63 cents per unit. The yield for 2012 is expected to be 8.25 per cent or 8.67 cents per unit. The offering closes at 6pm on Wednesday with trading expected to kick off at 2pm on Friday.

Sabana holds 15 industrial properties across Singapore and will manage them in line with Islamic principles. To be Shari'ah Compliant, the premises cannot be used for gambling, for example, or the production of pork or alcohol for human consumption. An independent Shariah committee will advise the Reit manager and issue the compliance certification.

Mapletree Industrial Trust is currently trading $1.09 (and that translate into a yield of 6.82%m versus the yield of 8.22% for Sabana for next year). Having said that, MIT is a much bigger firm with better assets and Ah Gong's backing, thus the credit worthiness and ratings are at a premium.  Assuming a fair value yield of 7-8%, that will translate into a fair value price of between $1.12 to $1.23. However, the firm is launching its IPO amidst uncertainties over the Euro zone economy, jittery markets and a mini "war" breakout between the Koreans. In this aspect, while i expect downside to be limited, do not expect any spectacular 'fireworks' on its debut. I think it will likely be range bound between the fair value range i mentioned above. 

I would have preferred it to be priced "below $1" by issuing more units so that it can cross above $1 on its debut (something like how MIT has priced itself). However, what i am proposing is just more psychological than anything else. I will give it a 2 Chilli rating but dont think you will 'miss anything' even if you dont apply.

7 comments:

Anonymous said...

I have been monitoring the REITS in Singapore. This REIT is similar to Cambridge Industrial Trust not MIT. Hence, it should not hold a premium and should trade lower to about 9-10% yield.

Plus all its restriction and compulsory donation needed for profits, this trust will have prob negotiating when a crisis comes...

Good to stay out for this..

2Y Capital said...

I also agree with you that it is more like cambridge. :) Cheers.

Anonymous said...

First day already drop below ipo.

2Y Capital said...

Guess the "sponsor" of REIT is important, which is why i said "won't miss much if you miss this IPO". :)

Anonymous said...

Agreed. Not sure how many people get burn on this ipo.

Anonymous said...

@2Y Capital:

Can I ask normally what is your few criteria you judge when you see an IPO? Hoping to discuss so that both of us can learn something new... :) Actually, I myself got a list of criteria, but sometimes things are not that black and white. I am thinking of ways to minimise the amt of risk such that all risks taken are calculated ones..

2Y Capital said...

The few key criteria will be:

1. Company's Valuation, biz and prospects.
2. Peers'valuation
3. Market sentiments
4. Sponsors for the listing.

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