Its not me - part 2 - Fraser Hospitality Trust

It's human instinct to want fairness and i am all for fairness. 

In one of the facebook group " Remove Sabana Reit" ,a member by the name of Mr Goh  mentioned that Sabana's rights are renounceable while Soilbuild rights are non-renounceable. This may explain why Sabana's rights expense was 12 times more expensive than Soilbuild.

Renounceable rights can be traded through SGX while non-renounceable rights cannot be traded on SGX. Naturally, since one has to engage investment bankers to list these tradable rights on SGX , it will cost more.

Fair enough. 

However, it doesn't explain why the expenses were 4.2% when the fees paid to the Investment bankers were only 3.6%. 

Where did the 0.6% ( remaining of the expense) of the $80.2 million ( $481,200) go to?

Take note that 0.6% is still higher than the 0.34% total rights expenses of Soilbuild.

Actually to be frank, a rose is still a rose, no matter what name you give it. 

Rights issuance is to raise money and whatever way you want to do it, the outcome is the same. 

And you Sabana, chose to use a more expensive route to raise the money you want.

So do not attribute an oversubsciption of 209.1% as strong support from unitholders when you spend so much money. Soilbuild was oversubscribed by 174.4%.

For some perspective

How about we forget about the above

Frasers Hospitality Trust(FHT) issued renounceable rights on September 2016. 

FHT holds a portfolio of hotels and service residences, and not industrial buildings like Sabana. 

The difference ends here.

Both issued renounceable right, both are effectively REITS and both are pretty close in dates in their issuance of rights.

On a percentage-wise, Sabana really overpayed.

To be fair, a small percentage of a large sum is different from a big percentage of a small sum. But this begs the following questions:

1) Was the issuance of a renounceable rights the most optimal way to raise such a small amount of funds?

2)Was a renounceable rights issuance ( presumably resulting in a higher cost) done because the managers were afraid that their rights will be undersubscribed if done under a non-renounceable rights issuance?  Gimmick to look good?(Yet still want to rebut to say that they are doing well with the 209.1% oversubscription.........)

3) Where did the $481,200 go to? It being higher than the total cost of the non-renounceable rights issuance of Soilbuild?

A lesson can be learnt here. In general, ceteris paribus, a renounceable rights will enjoy a higher subscription rate than a non-renounceable rights. And its pretty common sense. If i hate the company or if i do not have the cashflow to invest anymore, i will sell the renounceable rights to a willing buyer who will subscribe for it. 

Sabana Reit - At the cusp of an epoch

HSYT

HSYT keeps saying my english sucks and i am unintelligible. Hence, the need of a nice cheem title to show that i have some class in my english. Anyway, HSYT came to collect angbao from me today and before she left, she muttered the following under her fragrant breath, just to rankle and jiggle this old brain of mine.( got class?)

“

First they came for the Socialists, and I did not speak out— Because I was not a Socialist. Then they came for the Trade Unionists, and I did not speak out— Because I was not a Trade Unionist. Then they came for the Jews, and I did not speak out— Because I was not a Jew. Then they came for me—and there was no one left to speak for me.

”

Aha! Old Uncle who likes to eat soft grass immediately linked up what she was trying to say!That little limkumput of a HSYT!Luckily only gave you $2 for your angbao ,padded with massage and skincare vouchers with minimum spend of $88 bucks.. TAKE THAT!

So back to the Sabana story which i just recently bought just to support the movement. Unlike others who have lost money, i did not.

SO WHY SO KAYPOH?

I own many other counters, including a splattering ( got class?) of REITs. I thought that if we could make this a precedent (got class?) , it will bode well for minority shareholders in that we would not be taken advantage of for all other REITS or companies. It doesn't cost much to have a voice. It cost only $37 ( 100 shares ) to make your voice heard and start making all REIT managers or companies more accountable.

Fees, Fees,Fees, Heads i win, Tails i still win

Let's look how misaligned a REIT is to the unitholders. 

(below is summarised from Sabana IPO prospectus. Nearly all REITS have a similar structure if not identical)

Base Fee  

Up to 0.5% per annum of the value of the Deposited Property.

Performance Fee 

0.5% per annum of net property income if it achieves at least 10.0% in annual growth in DPU over the previous financial year

Acquisition Fee 

1% of acquisition price

Divestment Fee 

0.5% of sale price

**Any acquisition or divestment of properties do not need unitholders to vote

Now, how could a REIT manager game the system to earn more money?  

If the REIT gearing is low, i could borrow more money to acquire a lot of properties and increase  the DPU at the same time, increasing my base fee, netting performance fee and earning acquisition fee.

If the REIT gearing is nearing the regulatory limit of 45%,  I can issue rights or issue perpetual bonds to purchase new properties to increase my value of deposited properties to increase my base fee, and earn acquisition fee.I could also divest properties, netting some divestment fee in the process.

Will it be to my benefit to work hard to negotiate a lower price for the new property purchases?NO. Since the higher the acquisition fee, the more i earn as i earn 1% on the price, but better to play safe by buying at market value based on independent consultant's assessment so that i have evidence to back me.

Do i care if the purchased property i buy is lousy? Not really, since i can always dispose of it and earn the divestment fee.

Would it benefit me to spend money to do Asset Enhancement ( AEIs) so as to retain or attract new tenants? Not really, if it's unoccupied, maybe it's better and i can now justify its disposal and earn the divestment fee.

What happens if the DPU or share price goes down eventually? I am still earning the base fee, acquisition fee and divestment fee. I can't be fired. Heck the performance fee, it's too much work to find tenants, market the properties and retain tenants just to earn the miserly 10% of net property income.

WHERE IS THE ACCOUNTABILITY AND ALIGNMENT?

In case you are unaware, Sabana is in the process of  buying three properties and disposing 1 property. 

On a side note, please do not depend on the Monetary Authority of Singapore( MAS) to help us. They have many stakeholders whose interests MAS needs to balance while looking at the big picture. I think they are doing a good job already, having come up with a consultation paper on REITS and the issue of accountability and alignment was brought up. 

It is we, the unitholders, who must ACT as no one care more about our money than ourselves. 

REMOVAL OF THE MANAGER OF SABANA REIT

http://sabanareit.blogspot.sg/

Sabana Reit - An opportunity to unlock value

On 25 January, Sabana released their latest results presentation. I had a very troublesome time trying to calculate their price-to-book value post-rights.  The adjusted NAV per unit shown refers to pre-rights but naturally, everyone would be interested in knowing the post-rights one as the rights shares has already been issued.

I can't find any information on the new right units in their latest presentation. I had to dig up previous documents in order to find out the number of new rights units... so troublesome.

New rights units = 310,712,244
Units in issue as at 31 Dec 2016 = 742,371,286
Total units in issue = 1,053,083,530
New proceeds = $80,000,000
NAV as at 31 Dec 2016 = $556,795,000 
Total NAV post rights = $556,795,000 + $80,000,000
Nav per unit =  $0.605
Price to book = 0.60

25 January Results Presentation

Lately, there has been this group of investors who are trying to remove the Sabana manager OR to dissolve the trust and sell the assets. It seems to be going well. Therefore, i bought a little bit of Sabana to participate in it. 

The worst case that can happen is that these group of investors fail and i just get an about 7-9% dividend yield . I would much prefer them to dissolve the trust and sell the reit and i get 30-40% return ( assuming it can sell near it's NAV value and after factoring cost of selling). 

Even without these considerations, i think it would be good for me to support the rise in minority shareholder activism as this would sent a message to other companies that they need to buck up and not take us for granted.

REMOVAL OF THE MANAGER OF SABANA REIT

http://sabanareit.blogspot.sg/

Interest rate sensitivity of Sabana

Like a moth to a flame 

Burned by the fire 

My love is blind 

Can't you see my desire?

 - Janet Jackson

So if you have read my previous post about this particular "Hot sweet young thing " friend who recommended me to buy Sabana, she is back to recommend me! After Sabana's price having dropped further to $0.38 from the price of $0.51 when she recommended me. (Due to rights).

Hot Sweet Young Thing ( onwards called HSYT) said:" COme oN, a lousy business is a good investment at the right price. Can you calculate how Sabana will be affected by the rise in interest rate instead of just amplifying what is thrown around about a rise in interest rate and REITS are going to die...PleAse!"

Being a HSYT does have her privileges....so....

To calculate the debt of Sabana post rights

Using the above to calculate Debt

To calculate the distribution of Sabana post rights

With the 3 new purchases, the increment in distribution is assumed to be $6.15 million per year. This figure is attained from investmentmoats.  I agree with his way of calculating this figure. I emailed Sabana investor relations for a post -rights forecasted distribution but they replied that they were unable to provide and told me to wait for the Offer Information Statement ( together with the application forms) which will include more information.

Pre-rights latest distribution annualised based on the table below = 4.77cents per unit.
Pre-rights total number of shares  = 778 million.
Pre -rights total distribution annualised per year = $37.1 million ( $0.0477 times 778 million shares)

Lastest distribution pre-rights for annualised DPU

Interest rate sensitivity of Sabana post rights

Interest rate sensitivity

By the way, it is quite irritating that Sabana isn't able to give a forecasted DPU while other Reits do give. This makes it troublesome to do the above. Arrgh the privileges of a HSYT....

Should i buy Sabana Reit at a Price to Book of 0.66 and dividend yield of about 10%?

My friend recommended me Sabana Reit as it was trading at a dividend yield of about 10% and  at a P/B of 0.66. Sounds good right!

I made a 'big picture' comparison with its peers and it loses in many metrics. I think i will give it a miss.

Sabana Reit and Mapletree Industrial Trust

Lockup period
Sabana Reit-Period of 180 days from listing date. Thereafter, 50% will be locked up for the following 360 days from the end of the 1st lock up period.
MIT - Period of 180 days from listing date.

Gearing/Leverage
Sabana Reit - 26.5%
MIT-38.5%

Performance fee Paid to manager
Sabana Reit - 0.5% per annum on Net Property Income if DPU grows at least 10%
MIT-3.6% per annum on Net Property Income

Sabana Reit's Alignment with Unitholders
The Manager has elected to receive 80.0% of the base fee in the form of Units for the Forecast Year 2011 and the Projection Year 2012 and (if payable) 80.0% of the performance fee in the form of Units for the Projection Year 2012, except that where the issue price (which is equal to the Market Price (as defined herein) of each Unit) is at a discount of at least 20.0% to the NAV per Unit, the Manager shall receive the base fee for the Forecast Year 2011 and the Projection Year 2012 and (if payable) the performance fee for the Projection Year 2012 wholly in the form of cash.

Honestly, comparing MIT and Sabana, it seems that Sabana is more aligned with their Unitholders. I like that they will choose to receive their base and performance fees in cash instead of Units if the Units are undervalued ( underlined above).

I also like that Sabana set an extremely high performance target of being paid a performance fee if they grow the DPU at least 10% from the year before, unlike MIT's target which is so, well, duh! MIT will still get paid performance fee as long as they have some income. I think my grandma can do that!

Gearing of Sabana looks good too and their dividend yield of 8.22% is pretty attractive........i must say..BUT...here's the catch before you go blindly into such an investment...Read below
http://www.investmentmoats.com/money-management/reit/why-reits-and-business-trust-are-not-always-good-investments/