Sabana REIT Rights Issue – A Trap, or Simple Underperformance?

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Usually, REITs don’t issue rights at a severely discounted price to it’s NAV unless they are in financial distress, and the recent rights issue from Sabana was heavily discounted, but Sabana isn’t in a financially distressed position. So what gives?

Well it turns out that having a REIT with a sponsor is a double-edged sword; particularly if the REIT made some purchases which are of a questionable nature in terms of valuation and yield accretion, and the REIT manager prices the rights issue to finance the purchases at a very high discount to it’s recent trading price, compared to other REITs which do not discount the rights much, unless in financial distress due to economic climate and/or business continuity issues. In essence, this deal seems to heavily favour two parties – the sponsor (including the REIT manager), and new investors, who will see that the traded price of the REIT is way below the NAV, even lower than the other REITs, considering that other REITs in the same property segment are trading at a discount to book recently, due to headwinds in the Singapore economy.

Fortunately for me, at this point in time of writing, I am in the green for this counter after subscribing to the rights issue and trimming down my holdings, leaving a small amount so that I can exercise my right as a shareholder, as I do not wish to be too exposed on this security, until the storm blows over.

However, this does not mean I will be a “sleeping investor”. I take the same position that AK has taken, that it’s entirely your choice – whether you are for or against, I do not wish to convince you. However, I am for investor education, and NOT being apathetic, so here are the links to two Facebook groups that are for removing the REIT manager:

“When the Nazis came for the communists,
I remained silent;
I was not a communist.

When they locked up the social democrats,
I remained silent;
I was not a social democrat.

When they came for the trade unionists,
I did not speak out;
I was not a trade unionist.

When they came for the Jews,
I remained silent;
I wasn’t a Jew.”

Martin Niemöller

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