Friday, November 24, 2017

Sabana Reit - Update On Strategic Review

I wrote on Sabana just a couple of days ago (Link Here) and wanted to update on their latest announcement.

The update on the strategic review is finally out on Friday morning.

This explains why the share price has been sliding down in the past couple of weeks since they announced their Q3 results, perhaps there are insiders who already knew about the news.

I wanted to summarize the update in a nutshell to give us fellow investors some train of thoughts on what we need to do with this.

1.) Talks with ESR Reits have ended.

This is probably the most concerning news for investors if you are buying on the thesis of a successful review.

We'll probably never know the real reason behind this but it appears neither ESR nor Vibrant Group can reach out to a conclusion on this.

It'll remain to be seen if ESR will reduce its substantial stake in Sabana after this outcome.

2.) Selective Divestment of Properties

The management decides to go via this route of selective divestment of assets that they have.

This route is obviously a lot slower and more difficult, but they'd be able to be selective on the non-performing asset that they want to divest.

After a successful divestment earlier in the year for 218 Pandan Loop for 13.8% premium to the book value of the property, the company now has 20 properties under their radar.

Already, they have identified 6 Woodland Loop as their next selected divestment of choice as they have moved this into the short term property held for divestment in their balance sheet. This property amounted to $12.2m, which would translate into 1.1 cents which would either go into the working capital, repayment of loans, or returned back to the shareholders.

Given that they used the earlier divestment of 218 Pandan Loop to reduce much of their gearing, I suspect they may return the proceeds back to shareholders for this one.

3.) Expiring Master Lease Extended

They have managed to successfully renewed the expiring master leases for the 3 Sponsor linked properties (51 Penjuru, 33&35 Penjuru and 18 Gul Drive) on a one year term for an aggregate rental of about $8.8m. This is about what they are getting in terms of the rentals right now.

4.) Step Up Search for new Management and Appoint New ID

With the unsuccessful talks with ESR, this means it is business back to usual and they will need to search for a new CEO after Kevin will leave at the end of this year.

They have also appointed more Independent Directors to replace the old few who has resigned and it seems after the history saga, we may see a clean state of new board members in the company for 2018.

Final Thought

I think given that the news is out public, we may potentially see an overhang in the share price in the short term.

There are obviously people like me who buys into this on the thesis of hoping the strategic review that will work out in favor and there are another group of people who are buying this for dividend purpose.

I think valuation of the company at 0.76x P/BV and a near 8% dividend yield is about rather fair for such industrial sectors. The key for this really if you are holding for longer term is to hope for the new management to rebuild the trust of the public back and increase the value of the shareholders by doing their job well. It's not all done and dusted of course and we need to give them time to prove their worth over time. So this can be a successful investment pending this outcome.

To divest or keep, it depends on your objective ultimately on why you are buying this company in the first place.

Thanks for reading.

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  1. Replies
    1. Hi Peachmilktea

      Most likely divest based on logic.

    2. Sold my Sabana on the opening yesterday at $0.415

  2. DPU may dropped slightly with the 3 master leases renewed at $8.84mil.instead of last year $10.5mil.

    1. Thanks for correcting Tony.

      You are right, the master lease is renewed at a lower rate.

  3. As your loyal reader, i admire your courage in buying 230 lots of Sabana. whatever your decision might be on this, I hope this works out for you. Cheers.

  4. I am currently holding 200+k Sabana at average price of 84cents or double your cost. Any advice on qty to divest or hold?

    1. I am shocked your average price is so high.... I am struggling with my portfolio at 0.445... I am already losing thousands.

    2. Hi Jefferey

      Thats a hard call to be honest.

      It really depends on whether you feel like you are deprived in terms of opportunity costs elsewhere or simply weigh down by your high average price.

      It's really your call, if anyone tries to tell you to either hold or sell, thats their own opinion. You have to have yours.

  5. Hi B,

    For some strange reasons, I don't why investors often buy into companies that has a change in business direction or change in management. Let's be clear: business turnaround is possible but rarely successful, at least in Singapore.
    Good luck and enjoy the ride.


  6. Hi Gerald

    I am no longer holding this.

    I bought it at $0.415 on Wednesday or something like that and the moment the news came out over Friday I divested it right at the opening on Monday at $0.415.

    To answer your question, its a crappy business I agree, but at times when the valuation looks cheap and therr are certain events catalyst, that's where I make that weigh in between risk and reward.

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