Sabana: Singapore Industrial Property REIT with Activist Angle

Peter Kennan of Black Crane Capital presented his in-depth thesis on Sabana Shariah Compliant REIT (Singapore: M1GU) at Asian Investing Summit 2019.

Thesis summary:

Sabana REIT is an activist play in the context of impending consolidation of sub-scale industrial REITs in Singapore. Sabana is an 18-property portfolio with growth potential. It was listed in 2010. The properties are diversified into four industrial segments across Singapore. The properties are close to expressways and public transportation. The occupancy rate of the properties is approximately 84%.

The portfolio value is approximately SGD 929 million. ESR is a logistics real estate company controlled by Warburg Pincus. ESR increased its shareholding to 9.1% in May 2018, then later announced its acquisition of a 45% stake in Sabana REIT manager (November 2018). The three major cruxes behind the undervaluation: low occupancy, cost of debt, and lack of scale. Management is currently addressing the low occupancy rates within the portfolio, while the cost of debt and lack of scale are issues in the pipeline to be addressed.

Sabana REIT is significantly undervalued. There is limited downside given discount to NAV and attractive yield. Self-help is being implemented by the new CEO to create additional value to the portfolio. A consolidation or break up event is required to capture the full upside. The price to NAV as of March 2019 was 75%.

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About the instructor:

Peter Kennan is CIO of Black Crane Capital. Prior to founding Black Crane in 2009, Peter was a leading corporate financier with UBS Asia Pacific. He has 25 years of investment and corporate finance experience across a diverse range of sectors and transactions. With UBS, Peter was Head of Asian Industrials Group for UBS Asia, a corporate finance sector team covering energy, infrastructure, resources, consumer/retail and general industrial companies. He achieved number 1 team rating in Asia in 2006 and 2007. Peter was also the Head of Telecoms and Media sector team for UBS Australia specializing in M&A, advising on many large, complex transactions. Prior to UBS, Peter spent 7 years with BP in a variety of engineering and commercial roles.