Sabana – BT

Sabana Reit aims to raise $554m in IPO

Syariah-compliant Reit prices units at $1-1.10

Sabana real estate investment trust (Reit) – Singapore’s first syariah-compliant Reit – is set to offer a rich distribution yield and raise as much as $554 million from its initial public offering, its preliminary prospectus showed yesterday.

The Reit would sell 504 million units, with each unit to be priced within a range from $1 to $1.10 apiece. This excludes the 102 million units that have been subscribed by cornerstone investors, who include FIL Investment Management (Hong Kong), a Bahrain bank and Capital Investment & Brokerage, a subsidiary of a Jordan bank.

The property trust would hold some $850 million worth of 15 industrial properties in Singapore, making it the world’s largest Reit by asset value.

The three syariah-compliant Reits currently available in the region are all listed in Malaysia.

One distinguishing factor of a syariah-compliant Reit is to have at least 95 per cent of the gross revenue coming from businesses that adhere to syariah guidelines, which prohibit links with alcohol, tobacco and pork consumption, for instance.

The Reit manager has projected a distribution yield of 8.02 per cent and 8.05 per cent respectively for 2011 and 2012, based on the maximum offer price of $1.10. By simple comparison, Mapletree Industrial Trust offered a distribution yield of 7.6 per cent for its fiscal 2010.

While high yields are naturally attractive, analysts have warned that yield premium, which also reflects higher risks, may not be sustained for long.

The IPO offer consists a placement of 428 million units to investors that include institutional players, as well as a public offering of 75.5 million units.

Of the units offered to the public, 44.5 million, or nearly 60 per cent of the public offer, will be reserved for subscription by individuals related to Sabana Investment Partners (SIP) – the Reit’s sponsor – who includes management and business associates.

SIP is 51 per cent owned by Freight Links Express Holdings. Blackwood Investment holds 45 per cent, while Tarian Capital Partner controls 4 per cent.

The 31 million units set aside solely for public subscription represent 6.2 per cent of the total 504 million units being sold.

Several of these properties are situated at industrial areas of Loyang, which is near Changi Airport, and Penjuru, which is close to the shipping ports. They include five properties worth $193 million sold by Freight Links, and a facility worth $60 million that was sold by Soilbuild Group.

About 30 per cent of the properties, on a gross floor area basis, are built on the rent-free land sites that was leased from the Urban Redevelopment Authority (URA). Land rent from the URA is paid upfront at the start of the land lease, unlike assets from JTC Corporation, which are subjected to a regular land rent that would be revised annually based on market factors.

The bulk of its forecasted gross revenue for 2011 comes from its high-tech industrial businesses, which makes up 58 per cent of the pie. City Developments, through its unit, is expected to be Sabana Reit’s biggest contributor in revenue terms, making up nearly 40 per cent of the trust’s 2011 forecasted gross revenue.

The trust also expects minimal capital expenditure in 2011 and 2012.