In the past almost one year, Sabana Shariah Compliant Industrial REIT has received outsized attention despite its relatively modest size. This is partly due the completion of NTP+, a new mall that will raise rental revenue; and partly due to the barrage of open letters from Quarz Capital which railed against its proposed merger with ESR-REIT - successfully as it so happened.

Subsequently Quarz Capital started a campaign to remove Sabana REIT’s general mandate and its distribution reinvestment plan (DRP). This is more curious. And, as it happened, on April 27, unitholders voted by 61.76% to retain the general mandate and by 61.87% to keep the DRP in progress. The general mandate and DRP are ordinary resolutions requiring a simple majority.

Unitholders should want what is best for the REIT. A general mandate would enable the REIT to grow with accretive acquisitions if possible, thereby raising distributions per unit (DPU). Quarz Capital itself had at one point hoped that Sabana REIT’s DPU could grow by 30% in a year.

As for the DRP, this is for long term investors who can raise their stakes at a small discount, without having to pay brokers’ fees and commissions.

SEE:Sabana REIT posts portfolio occupancy of 79.0%, 96.7% occupancy for NTP+ in 1Q update

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Separately, Quarz Capital is a hedge fund, and out to make a fast dollar - as are most people. As a case in point, the fund divested of Sunningdale Tech ahead of the privatisation, once the buyout offer price was raised. And now it has amassed a 9% stake in Sabana REIT. How will this unwind? Sabana REIT is not as liquid as say Ascendas REIT, or Mapletree Logistics Trust or any of the larger industrial REITs.

Interestingly, ARA Asset Management signed a memorandum of understanding to acquire a 50% stake in Dasin Retail Trust’s trustee-manager and 5% of Dasin Retail Trust itself. This would give ARA a further $2.5 billion in assets under management.

In a February report, DBS Group Research indicated that ARA’s valuation could be $5 billion, which is a premium to its last traded price as a private company of $2.75 billion. The wire services have reported that ARA is looking to re-list. As a result, ARA appears to be interested in boosting its AUMs. What better way than to take a small stake in Sabana REIT and negotiate for a stake in its manager?

Surely Quarz Capital would be willing to sell at current levels as its Sabana REIT stake is in the money, including DPU and perhaps excluding DPU too, given it acquired units below 40 cents last year. It just needs to find the appropriate buyer.

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Sabana REIT is one of the best performers among the S-REITs, this year, up 18% year-to-date excluding DPU. Units in the REIT started to rise following an announcement on March 10, 2020, that its new mall, NTP+ had received its temporary occupation permit (TOP).

“Our price started to rise after our announcement that NTP+ received its TOP,” Donald Han, CEO of Sabana REIT’s manager had observed earlier. DBS Group Reserch reported that NTP+’s yield on cost is in double-digits.

Once NTP+ is up and running, and its 43,000 sq ft of gross floor area can contribute to rental revenue, Han can turn his attention to 10 Changi South Street 2 which is across the road from Expo MRT, an interchange station. The property is now a warehouse with a cargo lift, and is not built up to its allowable plot ratio. But it’s an industrial building so Han will have to think out of the box for concepts that would also yield a double-digit on cost.