Sabana REIT – BT

Freight Links delivers IPO with a difference

Logistics firm breaking new ground with $600m Islamic Reit due to list by year's end

(SINGAPORE) Freight Links Express Holdings expects to list Singapore's first Shari'ah-compliant real estate investment trust (Reit) worth about $600 million by the end of the year, sources close to the deal told BT yesterday.

The trust – which would hold about $850 million of Singapore industrial properties – is expected to be the world's largest certified Shari'ah-compliant Reit.

The three Shari'ah-compliant Reits now available in the region are all listed in Malaysia. They include Axis Reit, an office property trust that is currently the biggest listed Islamic Reit with a market cap of 812 million ringgit ($341.2 million).

The other two are Al-Hadharah Boustead Reit, which invests in plantation assets, and Al-'Aqar KPJ Reit, which focuses on healthcare assets.

Logistics company Freight Links, which owns 51 per cent of the Reit's manager, Sabana Investment Properties, said in a regulatory filing on Monday that it would subscribe up to 5 per cent of the IPO and invest as much as $30 million.

The other owners of Sabana Investment Properties are Blackwood Investment, which is run by private investors and owns 45 per cent of the trust, and Tarian Capital Partners, which owns 4 per cent.

BT understands that Singapore-incorporated Tarian Capital was formerly called Emirates Tarian, due to its links to Emirates Investments Group (EIG), a Dubai-based company known for glitzy property projects. EIG sold its stake in Emirates Tarian, which was renamed.

EIG, through the former Emirates Tarian, had its fingers in Singapore high-end property projects in recent years, including working with Ritz-Carlton to develop the Ritz-Carlton Residences.

Sabana Investment Properties, which was incorporated late last year, has been looking for warehouses to put into its portfolio since then, a source said.

Freight Links has already sold five properties worth $193 million to the Reit manager. The remaining properties for the trust – known as Sabana Reit – were acquired from various listed and unlisted parties.

These included Sim Lian Group, which said in May that it would sell properties worth $46.3 million to Sabana Reit. Soilbuild Group also sold the trust a warehouse in August for $60 million.

BT understands the listing is aimed at attracting funds from Middle Eastern investors, as few Shari'ah-compliant products are available.

One distinguishing factor of a Shari'ah-compliant Reit versus a conventional one is in having at least 95 per cent of the gross floor area of the properties adhere to Shari'ah laws, which prohibit any links with alcohol, tobacco and pork consumption, for instance.

This means that earnings generated from the 5 per cent of gross floor area of the warehouses not certified to be Shari'ah-compliant cannot be deemed for profit or distributed as dividends, and have to be given to charity.

Varying benchmarks are used by Reits to gauge the level of compliance, given differing schools of thought in Islamic teaching. Malaysia grants compliance if 80 per cent of the gross floor area follows Shari'ah law, sources said.

BT understands Sabana Reit is designed to meet stricter requirements expected in the Gulf region – to draw investors from that area.

The warehouses in the Reit are undergoing the final step in the certification process and are expected to meet compliance standards, BT understands.

The Reit also has to use Shari'ah-compliant banking and insurance products, given the different structure under Islamic finance. Under Shari'ah law, businesses cannot make money from interest fees, for example.

BT understands the upcoming listings of Global Logistic Properties and Mapletree Industrial Trust have helped boost confidence in the Sabana IPO, which has garnered strong interest from Middle Eastern investors. The Reit's roadshow is expected to start in November.

Shares of Freight Links surged 6.7 per cent or half a cent to end at eight cents yesterday in response to Freight Link's announcement made after the end of trading on Monday.

HSBC, Daiwa Capital Markets and UOB are joint book-runners for the Sabana IPO.