Expect more Syariah-compliant Reits in 2011

HSBC Amanah M’sia CEO also expects an increase in global sukuk issuance

More Syariah-compliant real estate investment trusts (Reits) will come to market in Asia in early 2011 as cross-regional Islamic investors increasingly embrace the product, HSBC Amanah Malaysia’s new head said.

Singapore’s first Syariah-compliant Reit, Sabana Reit, listed on Friday, having drawn a mixture of both conventional and Islamic investors, a quarter of them from the Middle East, chief executive Rafe Haneef told Reuters on Friday.

‘The take-up (among Gulf investors) for future Islamic Reits will be a lot greater than that,’ said Mr Haneef, who is also managing director of global markets for HSBC Amanah.

‘At the moment there is no timeline for when other issuers will come out with Islamic Reits, but I would expect more in the first or second quarter of next year,’ he said.

HSBC Amanah was exploring other Islamic Reit opportunities in Malaysia and Singapore, Mr Haneef said, noting it was financial adviser for the Sabana Reit initial public offering (IPO).

Sabana Reit, the world’s largest Syariah-compliant property trust, sold 508 million units at $1.05 each in its IPO this week. The IPO was 2.5-times subscribed. Sabana Reit’s shares closed at $1.02 on Friday on the Singapore stock market, after being weighed down by jittery market sentiment.

On Nov 23, Dubai Islamic Bank launched the emirate’s first Syariah- compliant Reit in a joint venture with French property firm Eiffel Management, a move executives said would help fuel growth in the country’s battered real estate sector.

Mr Haneef said Syariah-compliant Reits ensured higher-quality investments because the screening process looked at both the underlying asset and the usage of the asset, and does not allow for speculative or risky investments.

Mr Haneef, who was appointed CEO this week, said HSBC Amanah Malaysia continues to see a healthy global pipeline for Islamic finance products – including Islamic bonds, or sukuk – as investors seek to tap the growing US$1 trillion market.

He expects an increase in global sukuk issuance in the first quarter of 2011, with Middle East investors potentially looking to issue sukuk denominated in the Malaysia ringgit to satisfy interest among corporates and sovereign-linked entities.

Sources said Dubai plans to issue about US$1.5 billion worth of sovereign sukuk in Malaysia as the Gulf Arab emirate looks to tap the world’s largest Islamic bond market to diversify its funding avenues.

‘We were the first to bring a Middle East credit to the Malaysia ringgit sukuk,’ Mr Haneef said. ‘Currently, there’s a price advantage to tapping the Malaysian ringgit and swapping it back to dollar.’ – Reuters

SINGAPORE (Dow Jones)–Sabana Shari''ah Compliant Industrial Real Estate Investment Trust (M1GU.SG), or Sabana REIT, Friday opened 5.7% lower on its debut on the Singapore Exchange.

Sabana REIT, the world''s largest listed Shariah-compliant REIT by total assets, opened at S$0.99 compared with an initial public offering price of S$1.05. It was trading at S$1.00, or 4.8% lower than the IPO price, at 0610 GMT.

The Singapore-based company, which priced its offer at S$1.05 per unit, saw its IPO subscribed 2.5 times, allowing it to raise a total of S$666.40 million in gross proceeds.

Sabana, which is also the first Shariah-compliant listing in Singapore, had offered a total of 632.8 million units, of which 101.8 million were placed with cornerstone investors.

Of the remaining 507.99 million units, a total of 432.49 million were placed with institutional investors, 25.5 million with the public and the remaining 50 million reserved for company officials.

Sabana intends to use the proceeds of the IPO to purchase properties and to pay off debt-related costs.

The REIT''s assets are estimated at S$850 million.

Sabana Reit units 2.5 times subscribed

SHARES in Sabana Shari’ah Compliant Industrial Reit were subscribed about 2.5 times at the close of its initial public offering on Wednesday.

The offer for Singapore’s first real estate investment trust that adheres to Islamic finance principles comprised about 508 million units at $1.05 apiece.

This included an international placement of about 432.5 million units (which was subscribed about 1.9 times) and a retail tranche of 75.5 million units made available to the Singapore public.

For the public offer, 11,159 valid applications for 314.1 million units were received for the 25.5 million units available – which translated to a subscription ratio of 12.3 times.

The remaining 50 million were allocated as reserved units.

‘The level of interest shown by the public as well as institutional investors is a signal of their confidence in what we believe to be the strong growth potential of Sabana Shari’ah Compliant Reit,’ said Kevin Xayaraj, chief executive and executive director (investments) of the trust’s manager.

‘We are proud that we have four quality cornerstone investors, and two of them are from the Middle East.’

The offer by what is also the world’s largest Syariah-compliant Reit is expected to raise $664 million.

Most of the proceeds will be used to pay for three industrial properties in Singapore that it plans to buy from its sponsor, two of which are chemical warehousing facilities.

Trading of the units is expected to start at 2pm today.

The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch, is the sole financial adviser. HSBC, United Overseas Bank Limited and Daiwa Capital Markets Singapore Limited are the joint global coordinators, issue managers, bookrunners and underwriters.

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.

Sabana Reit IPO priced at $1.05 a share, to raise $491m

SABANA Shariah Compliant Reit, which owns industrial properties in Singapore, has priced its IPO at $1.05 a share, the midpoint of an indicative range, to raise $491 million, IFR reported yesterday, citing sources.

Sabana Reit, Singapore’s first Islamic Reit and the largest syariah-compliant property trust anywhere, is offering 605.8 million units in the initial public offering (IPO). It had originally set a price guidance of $1.00-$1.10.

The retail tranche of the IPO, which started later yesterday, will close on Nov 24 and the units will begin trading on Nov 26, IFR added.

Sabana controls 15 industrial properties in Singapore with an aggregate floor area of about 3.3 million square feet.

The manager of the Reit had forecast in a draft prospectus a distribution yield of 8.45 per cent for 2011 and 8.48 per cent for 2012 based on the minimum offer price of $1.00. FIL Investment Management Hong Kong, a unit of US fund manager Fidelity, and Bahrain’s al-Salam Bank are among the cornerstone investors that will buy 101.8 million units in the IPO.

HSBC is the sole financial adviser for the IPO and is joint global coordinator, bookrunner and underwriter with United Overseas Bank and Daiwa. — Reuters