Sabana – BT

Sabana Reit to snap up 3 properties soon

World’s largest syariah-compliant Reit to raise $664m through its IPO

SABANA real estate investment trust (Reit) – the first syariah-compliant Reit here – expects to buy at least three more industrial properties in Singapore from its sponsor Freight Links Express Holdings to boost its portfolio.

The Reit will raise $664 million from its listing at $1.05 per share – against its indicative price range of $1-$1.10 – and offer a distribution yield of about 8.22 per cent for its forecast year 2011, its prospectus showed yesterday. By comparison, recent listing Mapletree Industrial Trust forecast a yield of 7.6 per cent for its fiscal 2010.

Sabana Reit will rank as the world’s biggest syariah-compliant Reit by asset size – ahead of just three listed Islamic Reits found in Malaysia – given that it holds some $850 million worth of 15 industrial properties in Singapore.

The distribution yield comes as Sabana Reit enters an industrial trust market dominated by the names of Mapletree and Ascendas. ‘We’re very aware that we’re an independent Reit; and based on market feedback, we need to pay a bit more,’ chief financial officer Eric Pascal said in a briefing last week.

Sabana Reit’s managers have also aligned their pay structure such that they would only get a performance fee if the Reit shows an annual DPU growth of at least 10 per cent over the last fiscal year.

Freight Links is now in discussions with JTC Corporation to lengthen the current land tenure of its three industrial properties of under 20 years, which make them unsuitable for the trust, said chief executive Kevin Xayaraj. Once negotiations are completed over the next two months, Sabana Reit plans to buy these properties – which includes two chemical warehousing facilities – with the trust having the first right of refusal for the three facilities.

Most of Sabana Reit’s IPO proceeds, and a drawdown of $221 million from a committed three-year commodity murabaha facility, would be used to pay the vendors for the properties in its portfolio.

It is also in the hunt for more acquisitions, particularly in the high-tech industrial space that commands rental premiums in the double-digits, added Mr Pascal.

The bulk of its forecast gross revenue for 2011 comes from its high-tech industrial businesses at 58 per cent.

Any future acquisitions – which will be aimed at Singapore properties – should be funded by debt, with a long-term gearing target of about 40 per cent, said Mr Pascal.

The trust will pay US$45,000 a year as part of its syariah-certification process, said Mr Pascal. Under Sabana Reit’s syariah guidelines, 95 per cent of all business done in the properties of the trust must be permissible activities.

Some 0.27 per cent of the trust’s revenue come from businesses that are not syariah-compliant, including business from a flight catering service that stores alcohol.

The income from that portion of the business will be donated, and because the donation will not qualify for tax deduction, the trust’s DPU yield will see zero impact, Mr Pascal said. DPU is derived from distributable net income, which is the maximum amount received by a unitholder that is taxable.

Its 5 per cent limit contrasts with the 20 per cent limit on non-syariah compliant businesses for the three Islamic Reits in Malaysia – office property trust Axis Reit, plantation asset trust Al-Hadharah Boustead Reit, and healthcare asset play Al-‘Aqar KPJ Reit – with Sabana Reit deliberately following a more stringent requirement to draw in Middle Eastern investors.

Some 508 million units will be sold through the IPO – consisting of a placement of 432 million units to institutional players, and a public offering – while Freight Links will take up another 27 million units through its units.

A separate 97.8 million units will be subscribed by cornerstone investors which include FIL Investment Management (Hong Kong), Al Salam Bank-Bahrain, Capital Investment & Brokerage, a subsidiary of a Jordan bank, and a subsidiary of Metro Holdings.

They are expected to be long-term investors, though they have not committed to a lock-up period, said Mr Pascal, noting that the Middle Eastern bank may provide debt financing to the trust later.

Al Salam Bank’s head of Asia-Pacifc Byron Askin told BT that the investment was part of the bank’s strategy to raise its Asian private equity portfolio by $500 million over five years.

When asked if the Reit would tap the Islamic bond market, Mr Pascal pointed to a $1.5 billion Islamic bond issue that was issued by Malaysian state investor Khazanah in August. ‘It’s very large, very liquid, of a good credit rating, and in Sing dollars. You can draw your own conclusions.’

The public offer opened yesterday and will close tomorrow. Trading should start at 2pm on Friday.