Alpha Integrated RE    Last:0.48    -0.01

SABANA REIT

http://research.sginvestors.io/2020/09/singapore-industrial-reits-dbs-group-research-2020-09-18.html


 

 

Again, what your thinking ignores is the power of time value of money. The difference in value between Sabana&rsquo s 25 year lease term and say MLT&rsquo s 40 year lease term is only 5% of present value (using a 12% discount rate) (it is so low because the value of MLT&rsquo s incremental lease term is only realised way into the future). This is not an opinion but maths, which you can confirm by typing the numbers into excel and running a calculation. Meanwhile, given Sabana&rsquo s DPU yield is 3-4% higher than MLT&rsquo s, this higher DPU yield more than makes up for MLT&rsquo s longer lease term within two years. Given Sabana has 25 years of lease term not two, Sabana&rsquo s lower lease term is more than compensated for by the higher DPU yield and is by far the more attractively priced company.
 
Looking at it another way, you said in around 20 years time Sabana will be worth close to zero. That may be true (unless Sabana, no different from other REITs, is able to extend its lease lengths which may very well be possible although I would not give much value to in my valuation), but what you ignore in saying that are the dividends Sabana would have paid in the interim. Using rough numbers, Sabana has 25 years left on its leases. It also has some debt, so let us assume in the last 3 years of the lease term Sabana does not pay dividends in order to pay down the debt. That leaves the prior 22 years where Sabana is paying a 10% DPU yield (which over time will be growing) so pre-time value of money discount you are getting way over 200% of the current share price in cash and post discount gives a value still far in excess of the current share price. So yes in 20 years the share won&rsquo t be worth much but by then I would have made several times my money if I invested at the current share price so I am way up overall by that time already.
 
I appreciate if you are not financially educated some of this may seem counter intuitive. But it is critical to understand the maths (which is not that complicated), because without this one cannot answer the reasonable questions you raise and people end up making what financially literate people see as obviously bad decisions.

luckyguy3      ( Date: 24-Jul-2025 09:16) Posted: Land Lease Expiry for S-reit (Industrial/Log) CLAR: 38.5 years MLT: 40 years MINT: 44.11 years AIMS: 47.5 years ESR Reit: 43.7 years Sabana: 25.9 years. Huge gap: In around 20 years time, NTA of Sabana going to be near zero.    Alignment      ( Date: 24-Jul-2025 06:50) Posted: My previous post addressed your specific point on lease length but you raise a variety of new points now that merit a longer answer.   The arguments you now make are exactly those that ESR used in 2020 to try to persuade Sabana shareholders to sell to them by exchanging 1 Sabana share for 0.94 ESR REIT shares (I seem to remember you were supportive of this deal at the time so perhaps it is not surprising). Sabana shareholders were smart enough not to listen if they did they would now be holding 0.94 of a ESR REIT share currently worth 25.5 cents (ie 23.97 cents) rather than a Sabana share currently worth 41 cents which would have been a loss of over 40%.   The reality is what matters most operationally is having good assets to start with and executing well, which is helped by having management that is both competent and aligned with all shareholders. The fact that last night Sabana has just announced available distributable income per share that is the highest since at least 2018 shows that the points you made have not been relevant in affecting the performance of the company. It should also be noted that this result last night was achieved with a portfolio occupancy of only 85.7%, lower than all its peers, which indicates that there is more potential for organic upside growth here than elsewhere. Finally throw in a still cheap share price as indicated by its DPU yield, and an imminent internalisation that provides protection against future mishaps like the ESR merger from repeating, and I think the investment proposition is pretty compelling.

 

Internal manager is how all reits worldwide operate. Sabana will hit 50c

 

 

u are vested of course u will support Sabana no matter what happens, even if lease expiry is only 1 year left, u will 
continue to ignore it and talk good things about Sabana.. well.. never fall in love with a counter but if u are, then good luck to u

seanpent      ( Date: 24-Jul-2025 12:45) Posted: Good point ..... " investment proposition is pretty compelling" Alignment      ( Date: 24-Jul-2025 06:50) Posted: My previous post addressed your specific point on lease length but you raise a variety of new points now that merit a longer answer.   The arguments you now make are exactly those that ESR used in 2020 to try to persuade Sabana shareholders to sell to them by exchanging 1 Sabana share for 0.94 ESR REIT shares (I seem to remember you were supportive of this deal at the time so perhaps it is not surprising). Sabana shareholders were smart enough not to listen if they did they would now be holding 0.94 of a ESR REIT share currently worth 25.5 cents (ie 23.97 cents) rather than a Sabana share currently worth 41 cents which would have been a loss of over 40%.   The reality is what matters most operationally is having good assets to start with and executing well, which is helped by having management that is both competent and aligned with all shareholders. The fact that last night Sabana has just announced available distributable income per share that is the highest since at least 2018 shows that the points you made have not been relevant in affecting the performance of the company. It should also be noted that this result last night was achieved with a portfolio occupancy of only 85.7%, lower than all its peers, which indicates that there is more potential for organic upside growth here than elsewhere. Finally throw in a still cheap share price as indicated by its DPU yield, and an imminent internalisation that provides protection against future mishaps like the ESR merger from repeating, and I think the investment proposition is pretty compelling.

 

Good point ..... " investment proposition is pretty compelling"

Alignment      ( Date: 24-Jul-2025 06:50) Posted: My previous post addressed your specific point on lease length but you raise a variety of new points now that merit a longer answer.   The arguments you now make are exactly those that ESR used in 2020 to try to persuade Sabana shareholders to sell to them by exchanging 1 Sabana share for 0.94 ESR REIT shares (I seem to remember you were supportive of this deal at the time so perhaps it is not surprising). Sabana shareholders were smart enough not to listen if they did they would now be holding 0.94 of a ESR REIT share currently worth 25.5 cents (ie 23.97 cents) rather than a Sabana share currently worth 41 cents which would have been a loss of over 40%.   The reality is what matters most operationally is having good assets to start with and executing well, which is helped by having management that is both competent and aligned with all shareholders. The fact that last night Sabana has just announced available distributable income per share that is the highest since at least 2018 shows that the points you made have not been relevant in affecting the performance of the company. It should also be noted that this result last night was achieved with a portfolio occupancy of only 85.7%, lower than all its peers, which indicates that there is more potential for organic upside growth here than elsewhere. Finally throw in a still cheap share price as indicated by its DPU yield, and an imminent internalisation that provides protection against future mishaps like the ESR merger from repeating, and I think the investment proposition is pretty compelling.   luckyguy3      ( Date: 24-Jul-2025 04:39) Posted: haha.. u happy can liao... once the rental reversion returns to low single digit aka normal rate which is expected this year then the decay in NTA will accelerate when the lease remaining is so short at only 25.9 years plus Sabana is a small sized reits and bank are not willing to lend them at better rate, that why now their overall costs of debt is around 4.5%. Sabana is a small reit plus with such a low lease remaining it will eventually be squeezed out by the larger reits. Good luck if u think holding Sabana long term is a good strategy.

 

Lets not overlook the fact that the current interim manager has delivered impressive results despite the ongoing internalisation process. Its quite remarkable that the team has maintained such a high level of performance, especially considering that many of the original staff would likely have moved on by now.

Given that the internalisation has been ongoing for nearly two years, most employees would have already secured new roles elsewhere. That suggests the current staff composition, aside from senior management (I believe there are no change since there are no SGX announcement), is likely made up of contract staff or perhaps those who didnt have other opportunities. After all, its hard to imagine many would knowingly take on a role with an uncertain future.

 

Land Lease Expiry for S-reit (Industrial/Log)

CLAR: 38.5 years
MLT: 40 years
MINT: 44.11 years
AIMS: 47.5 years
ESR Reit: 43.7 years
Sabana: 25.9 years.

Huge gap: In around 20 years time, NTA of Sabana going to be near zero. 


 

Alignment      ( Date: 24-Jul-2025 06:50) Posted: My previous post addressed your specific point on lease length but you raise a variety of new points now that merit a longer answer.   The arguments you now make are exactly those that ESR used in 2020 to try to persuade Sabana shareholders to sell to them by exchanging 1 Sabana share for 0.94 ESR REIT shares (I seem to remember you were supportive of this deal at the time so perhaps it is not surprising). Sabana shareholders were smart enough not to listen if they did they would now be holding 0.94 of a ESR REIT share currently worth 25.5 cents (ie 23.97 cents) rather than a Sabana share currently worth 41 cents which would have been a loss of over 40%.   The reality is what matters most operationally is having good assets to start with and executing well, which is helped by having management that is both competent and aligned with all shareholders. The fact that last night Sabana has just announced available distributable income per share that is the highest since at least 2018 shows that the points you made have not been relevant in affecting the performance of the company. It should also be noted that this result last night was achieved with a portfolio occupancy of only 85.7%, lower than all its peers, which indicates that there is more potential for organic upside growth here than elsewhere. Finally throw in a still cheap share price as indicated by its DPU yield, and an imminent internalisation that provides protection against future mishaps like the ESR merger from repeating, and I think the investment proposition is pretty compelling.   luckyguy3      ( Date: 24-Jul-2025 04:39) Posted: haha.. u happy can liao... once the rental reversion returns to low single digit aka normal rate which is expected this year then the decay in NTA will accelerate when the lease remaining is so short at only 25.9 years plus Sabana is a small sized reits and bank are not willing to lend them at better rate, that why now their overall costs of debt is around 4.5%. Sabana is a small reit plus with such a low lease remaining it will eventually be squeezed out by the larger reits. Good luck if u think holding Sabana long term is a good strategy.

 

My previous post addressed your specific point on lease length but you raise a variety of new points now that merit a longer answer.
 
The arguments you now make are exactly those that ESR used in 2020 to try to persuade Sabana shareholders to sell to them by exchanging 1 Sabana share for 0.94 ESR REIT shares (I seem to remember you were supportive of this deal at the time so perhaps it is not surprising). Sabana shareholders were smart enough not to listen if they did they would now be holding 0.94 of a ESR REIT share currently worth 25.5 cents (ie 23.97 cents) rather than a Sabana share currently worth 41 cents which would have been a loss of over 40%.
 
The reality is what matters most operationally is having good assets to start with and executing well, which is helped by having management that is both competent and aligned with all shareholders. The fact that last night Sabana has just announced available distributable income per share that is the highest since at least 2018 shows that the points you made have not been relevant in affecting the performance of the company. It should also be noted that this result last night was achieved with a portfolio occupancy of only 85.7%, lower than all its peers, which indicates that there is more potential for organic upside growth here than elsewhere. Finally throw in a still cheap share price as indicated by its DPU yield, and an imminent internalisation that provides protection against future mishaps like the ESR merger from repeating, and I think the investment proposition is pretty compelling.  

luckyguy3      ( Date: 24-Jul-2025 04:39) Posted: haha.. u happy can liao... once the rental reversion returns to low single digit aka normal rate which is expected this year then the decay in NTA will accelerate when the lease remaining is so short at only 25.9 years plus Sabana is a small sized reits and bank are not willing to lend them at better rate, that why now their overall costs of debt is around 4.5%. Sabana is a small reit plus with such a low lease remaining it will eventually be squeezed out by the larger reits. Good luck if u think holding Sabana long term is a good strategy.   Alignment      ( Date: 23-Jul-2025 22:32) Posted: If you do the maths, the value impact of a decline in land lease is not that big a deal when there are so many years left, because of time value of money. Say you have a fixed annuity and a cost of capital of 12% (a reasonable equity return I think). The difference in present value between an annuity running 26 years and one running 33 years is only 3%, so the theoretical change in value due to the rundown in lease term between 2018 and 2025 is minimal. This is the same going forward for the next few years, The fall in theoretical present value between an annuity running 26 years and one running 20 years (ie by 2031) is only another 5%. To conclude, you do not need a lot of asset enhancement value creation to offset this decline in lease length in the near term. At some point long into the future (we are talking 15 years + from now, when the remaining life falls below circa 10 years) the decline in present value starts to become more meaningful so management have a lot of time to deal with this problem before this happens (and by then I would have sold anyway). ​ Anyone who doubts this feel free to replicate my maths on excel.

 

haha.. u happy can liao... once the rental reversion returns to low single digit aka normal rate
which is expected this year then the decay in NTA will accelerate when the lease remaining
is so short at only 25.9 years plus Sabana is a small sized reits and bank are not willing to
lend them at better rate, that why now their overall costs of debt is around 4.5%.
Sabana is a small reit plus with such a low lease remaining it will eventually be squeezed
out by the larger reits. Good luck if u think holding Sabana long term is a good strategy.

 

Alignment      ( Date: 23-Jul-2025 22:32) Posted: If you do the maths, the value impact of a decline in land lease is not that big a deal when there are so many years left, because of time value of money. Say you have a fixed annuity and a cost of capital of 12% (a reasonable equity return I think). The difference in present value between an annuity running 26 years and one running 33 years is only 3%, so the theoretical change in value due to the rundown in lease term between 2018 and 2025 is minimal. This is the same going forward for the next few years, The fall in theoretical present value between an annuity running 26 years and one running 20 years (ie by 2031) is only another 5%. To conclude, you do not need a lot of asset enhancement value creation to offset this decline in lease length in the near term. At some point long into the future (we are talking 15 years + from now, when the remaining life falls below circa 10 years) the decline in present value starts to become more meaningful so management have a lot of time to deal with this problem before this happens (and by then I would have sold anyway). ​ Anyone who doubts this feel free to replicate my maths on excel.

 

If you do the maths, the value impact of a decline in land lease is not that big a deal when there are so many years left, because of time value of money.

Say you have a fixed annuity and a cost of capital of 12% (a reasonable equity return I think). The difference in present value between an annuity running 26 years and one running 33 years is only 3%, so the theoretical change in value due to the rundown in lease term between 2018 and 2025 is minimal.

This is the same going forward for the next few years, The fall in theoretical present value between an annuity running 26 years and one running 20 years (ie by 2031) is only another 5%.

To conclude, you do not need a lot of asset enhancement value creation to offset this decline in lease length in the near term. At some point long into the future (we are talking 15 years + from now, when the remaining life falls below circa 10 years) the decline in present value starts to become more meaningful so management have a lot of time to deal with this problem before this happens (and by then I would have sold anyway).

​ Anyone who doubts this feel free to replicate my maths on excel.

 

watch time = 14.40 mins
http://www.youtube.com/watch?v=Sz_oaRGam18

sangsang1      ( Date: 23-Jul-2025 20:27) Posted: they can redevelop alot of their properties because the properties have extra gfa for lease top up from JTC better than buying properties on the market. go check how much ascendas and MINT have write off their foreign acqisitions + fx loss

 

Good for the landlord , Hong Leong group only .

luckyguy3      ( Date: 23-Jul-2025 20:36) Posted: redevelop does NOT solve the lease decay and somemore their lease left is only 25.9 years and that is very very low and dangerous. Spending money and reveloping properties with short lease left is not a good idea because the depreciation will be huge. Is like ur car is 9 years old and COE is expiring. Do you go repaint and beautify your car with such a short period left. The ONLY way to solve the lease decay is to do what Ascendas, Mint and ESR reit are doing.. assets recycling and acquisition of foreign freehold assets. Anyway I know you will always defend ur Sabana reit, is ur rights. I just stating the facts.  sangsang1      ( Date: 23-Jul-2025 20:27) Posted: they can redevelop alot of their properties because the properties have extra gfa for lease top up from JTC better than buying properties on the market. go check how much ascendas and MINT have write off their foreign acqisitions + fx loss

 

redevelop does NOT solve the lease decay and somemore their lease left is only 25.9 years and
that is very very low and dangerous.

Spending money and reveloping properties with short lease left is not a good idea because
the depreciation will be huge.

Is like ur car is 9 years old and COE is expiring. Do you go repaint and beautify your car with such
a short period left.

The ONLY way to solve the lease decay is to do what Ascendas, Mint and ESR reit are doing.. assets recycling
and acquisition of foreign freehold assets.

Anyway I know you will always defend ur Sabana reit, is ur rights. I just stating the facts. 

sangsang1      ( Date: 23-Jul-2025 20:27) Posted: they can redevelop alot of their properties because the properties have extra gfa for lease top up from JTC better than buying properties on the market. go check how much ascendas and MINT have write off their foreign acqisitions + fx loss

 

they can redevelop alot of their properties because the properties have extra gfa for lease top up from JTC
better than buying properties on the market.
go check how much ascendas and MINT have write off their foreign acqisitions + fx loss

 

Sabana is not doing any recycling of assets. Right now their dividend is maintain/improved thru
increasing rental reversion BUT when rental reversion no longer growing, the lease decay will come
to haunt them.
Other blue chip reits like Ascendas, MINT are actively recycling assets thru disposal + acquisition via
fund raising if necessary to improve the quality of their assets. They also aquiring foreign assets
which are freehold assets and that help to keep the lease decay in check so even when rental reversion
no longer growing, the lease decay will not cause too much harm.

So in a way, Sabana is 躺 平 and let the lease decay worsen every year which eventually will haunt them.

luckyguy3      ( Date: 23-Jul-2025 19:40) Posted: WRONG!!! Look at Sabana lease left. From 2018 of 33 years to now 25.9 years. Sabana is not doing any acquisition thru disposal/fund raising, their assets are  decaying as industrial assets in Singapore have short lease. On the other hand, ESR Reit may be suffering in the past 2-3 years becos of acquisition/disposal/fund raising but the quality of their assets have improved. In a way ESR Reit is 先 苦 后 甜 , while Sabana is 躺 平 . In the end, the decay in  lease for Sabana will come to haunt them later.   sangsang1      ( Date: 23-Jul-2025 19:17) Posted: well done Quart and Volare.. Without internalisation, nobody can see that sabana can perform that well..  manager tell us reit too small, challenging... must merge with ESR.. or tough to make it now 1h2025 dpu 1.87 without retainment, annual it 3.74, almost 9.23% dividend yield. with internalisation cost savings, pay back dividend retain.. hopefully  dpu can go to 4 cents.. Wah almost 10% dividend yield..  Swee lah!

 

WRONG!!! Look at Sabana lease left. From 2018 of 33 years to now 25.9 years.
Sabana is not doing any acquisition thru disposal/fund raising, their assets are 
decaying as industrial assets in Singapore have short lease.
On the other hand, ESR Reit may be suffering in the past 2-3 years becos of
acquisition/disposal/fund raising but the quality of their assets have improved.
In a way ESR Reit is 先 苦 后 甜 , while Sabana is 躺 平 . In the end, the decay in 
lease for Sabana will come to haunt them later.


 

sangsang1      ( Date: 23-Jul-2025 19:17) Posted: well done Quart and Volare.. Without internalisation, nobody can see that sabana can perform that well..  manager tell us reit too small, challenging... must merge with ESR.. or tough to make it now 1h2025 dpu 1.87 without retainment, annual it 3.74, almost 9.23% dividend yield. with internalisation cost savings, pay back dividend retain.. hopefully  dpu can go to 4 cents.. Wah almost 10% dividend yield..  Swee lah!

 

well done Quart and Volare.. Without internalisation, nobody can see that sabana can perform that well.. 
manager tell us reit too small, challenging... must merge with ESR.. or tough to make it
now 1h2025 dpu 1.87 without retainment, annual it 3.74, almost 9.23% dividend yield.
with internalisation cost savings, pay back dividend retain.. hopefully  dpu can go to 4 cents.. Wah almost 10% dividend yield.. 
Swee lah!   

 

INCOME AVAILABLE FOR DISTRIBUTION PER UNIT FOR 1H 2025 GREW 27.2% YEAR-ON-YEAR TO 1.87 CENTS, HIGHEST SINCE 1H 2018 
 

Gotta say, the current interim manager is doing a really solid job. No new acquisitions, yet still managed to grow the portfolio by almost 30% year on year, that is pretty impressive. Dont think any other REITs are pulling off numbers like that.

Kinda a shame some shareholders still want to replace them. Fingers crossed the new internal manager can keep up the momentum and not end up embarrassing themselves.

 

Judging from ESR selling down its stake in AIMS APAC REIT at over a 10% discount to the market price, Sabana shareholders do not need to worry about overhang issues. There will be a lot of buyers ar that price.