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Sabana REIT: 1Q 2014 DPU 1.88c.

Thursday, April 17, 2014

Although I expected a decline in DPU from Sabana REIT, the decline to 1.88c is rather drastic. Based on a unit price of $1.08, this gives us an annualised distribution yield of only 7.05%.

Remember I made an assumption in an earlier blog post on Sabana REIT regarding how Mr. Market might demand a premium in distribution yield from the REIT compared to A-REIT? At that time, I said that Mr. Market might send the unit price down to $1.03 if it should demand an 8.5% yield. In fact, it touched a low of $1.005.

With distribution yield now at 7.05%, to get to an 8% yield, unit price might fall to 94c. Well, a drastic fall in DPU might just be accompanied by a drastic fall in unit price. I am not saying that it will happen but I won't be surprised if it should happen.

If we look at the numbers, it is really the almost 400% increase in property expenses that has resulted in a huge reduction in DPU. Of course, there is also the issuance of new units in payment to the management of the REIT as well as a higher vacancy rate.

As investors, we want to know if the increase in property expenses is temporary or permanent. So, we have to look at the details. These expenses are:

(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

Source: 1st Quarter Financial Statement.

From what I can see, all four expense items are here to stay. So, even if the REIT should achieve 100% occupancy once again, it will be difficult for it to achieve a DPU that is even close to that of last quarter's.

The much lower DPU this quarter and a weaker outlook for industrial properties, together with my belief that the management's interests are not strongly aligned with minority unit holders', have pushed me to look into possibly making another partial divestment.

The good news? We now know what is probably a realistically sustainable DPU for Sabana REIT, everything else remaining equal. Things could worsen, of course, if the one Master Lease expiring end of 2014 is not renewed but it would be unlikely for things to worsen considerably. Having baseline information like this will help us in deciding when it could be a good time to buy into the REIT again with a greater measure of confidence.

See presentation slides: here.

Related posts:
1. 4Q 2013 results.
2. Reduced Sabana REIT.
3. Buy but remember the Sukuk.

Commonwealth Towers: Average price $1,600 - $1,700 psf?

Wednesday, April 16, 2014

After so many rounds of cooling measures, the heat is still on if the response to Commonwealth Towers is anything to go by. Apparently, more than 1,500 people turned up at the preview.

This is going to be one densely populated piece of land. The land area is a little more than 130,000 square feet which is decent enough but what is the plot ratio? 5.38!

Imagine that this was where Queenstown Test Centre was located. People went there to take their driving theory tests years ago. I remember. I took my test there too.

There will be 845 units with 11 units per floor in two towers. I wonder how many lifts they have per tower? My guess is 3 lifts per tower. This means 141 households share one lift, more or less. I think there might be problems if the experience shared by people who stay in the condominium across the road (i.e. Queens) is anything to go by.

Well, maybe Commonwealth Towers will be generous and will have 4 lifts per tower, the ratio improves to 106 households per lift. Still, people who stay in HDB 5 room flats in point blocks should smile since, in their case, 96 households share two lifts.

The location is good but I just don't know about living in such a densely packed project. Oh, if you are interested, you want to consider buying units facing away from the MRT tracks. Commonwealth MRT station is an above ground station.

Oh, what about the price?

It is estimated that the average price could be in the range of $1,600 to $1,700 psf! So, for a 441 sq ft one bedroom unit, I would not be surprised if the price is even $1,800 psf which means a price tag of $793,800. Almost $800K and this could be the price for the low floor units!

Mind boggling!

I don't know about you but I am perspiring from the heat. More cooling measures, please.

Related posts:
1. To rent or to buy: Rule of 15.
2. Make your first million in real estate.
3. Buying a private property?
4. Slaving to stay in a condominium.
5. Never lose money in real estate?

CapitaMalls Asia: Being offered $2.22 a share.

Monday, April 14, 2014

I have been a CapitaMalls Asia shareholder since middle of 2011 and when I found out that the parent is offering to delist the company, I had mixed feelings.

The positive is that at $2.22 per share, the offer price is fair. The NAV/share is $1.84. So, this offer is a 20% premium to book value. NAV grew 10% year on year. So, being paid $2.22 a share, it is like getting paid in advance for growth that is likely to happen in the next couple of years.

The negative is that I will lose the chance to buy more of a stock which I believe was going through a period of price weakness, given the concerns about China. So, I was looking forward to accumulating with a greater margin of safety (i.e. buying at a bigger discount to NAV). Well, not going to happen now.

With an IPO price of $2.12 a share in late 2009, privatising CapitaMalls Asia with an offer price of $2.22 a share makes sense. It is like borrowing money from the public and paying an interest of only 1.05% per annum over a 4 and a half year period.

This is, perhaps, a good time to remember what Warren Buffett once said.

The idea that an IPO, offered with significant commissions, with all kinds of publicity, with the seller electing the time to sell, is going to be the single best investment that I can make in the world among thousands of choices is mathematically impossible.

Buffett is the reason why I have not bought into any initial public offerings in many years.

Anyway, I will probably channel the funds from this divestment into a war chest and wait for Mr. Market to feel depressed again. There is no hurry to buy anything.

Read press release: here.

Related post:
A strategy to grow wealth and augment income.

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