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Transcript of Kevin Xayaraj Tay, CEO, Sabana Real Estate Investment...
February 2011
Sabana Shari’ah Compliant Industrial REITKevin Xayaraj Tay, CEO, Sabana Real Estate Investment Management Pte Ltd
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What is Sabana REIT?
World’s largest listed Shari’ah Compliant REIT
First listed REIT globally to adopt stricter GCC-standard Shari’ah compliance
First Shari’ah Certificate for a Singapore listing
Largest IPO free float for industrial Singapore REITs
Access to untapped equity markets (e.g. Bahrain and Jordan)
IPO Deal of the Year
Real Estate Deal of the Year
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Sabana Shari’ah Compliant REIT in the press
“Sabana REIT has advantage over conventional REITs, with access to investors from both Shari’ah and conventional markets. The growth in the Islamic finance industryglobally...will translate to an increase in demand for Shari’ah compliant financial products.”Bloomberg, 22 Nov 10
“It is rare for the global mutual fund operator (Fidelity) to come in as a cornerstone in IPOs, both in Asia and globally...The strong interest among Islamic investors was not surprising…”
FinanceAsia, 22 Nov 10
“A template for Islamic REITs”The Asset, Jan 11
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Why a Shari’ah compliant REIT?
Unprecedented access to unique investor base
New source of capital Key differentiator Industrial assets are suitable
Conventional53%
Middle East 47%
Asia65%
Europe 10%
Middle East 25%
IPO demand by geography IPO cornerstone investors
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Sabana REIT - overview
Chemical Warehouse & Logistics
Listed 26 November 2010
15 Singapore industrial properties
33 & 35 PenjuruLane
General Industrial
123 Genting Lane
Source: Prospectus
Asset: c.S$885m / US$680m
Sponsored: Freight Links, a Singapore-listed logistics company
Overview
High-tech Industrial
151 LorongChuan
Warehouse & Logistics
34 Penjuru Lane
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Sabana REIT – portfolio highlights Gross revenue by asset typeNLA by tenants’ or sub-tenants’ sector
Source: Prospectus
58.4%
16.4%
19.5%
5.7%
High-tech Industrial
Chemical Warehouse & Logistics
Warehouse & Logistics
General Indusrial
11.9%
17.5%
5.1%16.8%
8.2%
3.1%
6.1%
20.4%
4.5%3.4%
3.0%
Chemical ElectronicsEngineering Food & beverageHealthcare Information technologyLogistics OthersResearch & Development StorageTelecommunication & data warehousing
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Sabana REIT’s Shari’ah complianceActivity Shari’ah compliant Sabana REIT
Income
Distributions from Shari’ahcompliant activities only
≤5% income from non-Shari’ahactivities, which is cleansed
< 0.3% from non-compliant income
Required cleansing is immaterial
Debt If Shari’ah product not available,
debt up to 1/3 of NAV or market capitalisation
Commodity Murabaha
Insurance Shari’ah products preferred
Insurance replicates Takaful
Deposits Shari’ah compliant product
Corporate governance Shari’ah advisory panel Shari’ah Committee
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GCC-aligned Shari’ah compliance
Regulation Malaysia REIT Sabana REIT
Non-Shari’ah income contribution ≤ 20% ≤ 5%
Proportion of non-Shari’ahdebt 0% Up to 1/3 of NAV or market
capitalisation
Sabana REIT has deliberately adopted a Shari’ah compliance policy that is aligned with GCC standards
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Income stability
Stable source of income from long-term rentals
Ideal for investors diversifying away from Sukuks without foregoing stability
Income stabilitySabana forecast DPU yield at IPO
8.22% 8.25%
FY2011 FY2012
Source: Prospectus
c.100.0% occupancy
WALE: 3.8 years
Annual step-up: up to 2.0%
Gearing: 26.5%
Debt headroom: US$88m to US$565m
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14.1%7.7%
10.7%7.0%
13.4%19.0%10.6%
8.6%
5.4%
5.9%5.1%
6.7%
7.0%6.0%
27.6%
14.4%15.8%12.9%
18.8%21.1%
16.6%
Sabana CapitaMall Suntec CapitaCommercialAscendas MapletreeLogistics
Average top 5
Target price differential FY11E DPU yield
Compelling total return proposition
Singapore REITs offer investors a healthy balance of income stability through stable distributions plus capital growth
FY2011E total return for Singapore REITs by assets
Source: Bloomberg (11 Feb 2011)
Singapore’s top 5 REITs by assets
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Impact on industryPrior to Sabana, none of the existing listed Shari'ah compliant REITs had : asset size >US$400mGCC Shari’ah compliance standards a sizeable investor base outside Malaysia
Assets (US$m) 680 365 295 395
Listing
Asset type Industrial Healthcare Plantation Mixed
Shari’ah compliance
Mkt cap (US$m) 472 214 266 289
Float (%) 86.7 37.9 32.5 71.8
Sources: Company reports, Bloomberg (11 Feb 2011), Factset
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Impact on industry (cont’d)
Increased industry market capitalisation by 62% and total assets by 64%
Total assets (US$m)Aggregate market capitalisation (US$m)
1,725
998910852
1Q10 2Q10 3Q10 4Q10
+64%
Sources: Company reports, Bloomberg (11 Feb 2011)Note: Assuming Al-Aqar had same amount of assets in 3Q and 4Q
0
200
400
600
800
1,000
1,200
1,400
Aug 05 Aug 06 Sep 07 Oct 08 Nov 09 Dec 10
+62%
Axis Al-Aqar Al-Hadharah Sabana
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Impact on industry (cont’d)
Establishes the listed REIT as a viable Shari’ah vehicle
Education of conventional investors on the benefits of Shari’ah compliance
Tipping point: New Shari’ah compliant REITs expected in Asia
Why is this important?
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S$636m Sabana Shari’ah Compliant REIT IPOTransaction summary
Issuer: Sabana Shari’ah Compliant Industrial REIT (“Sabana REIT”)
Offering type: IPO on Mainboard SGX
Pricing date: 18 Nov 10
Listing date: 26 Nov 10
Base offering size:
S$636m / US$491m, or
605.8m units (100% primary)
Mkt cap: S$664m / US$513m
Free float: 95.7% of share capital
Price range: S$1.00 – 1.10 per unit
Final price: S$1.05
FY11E DPU yield:
8.22%
Premium to NAV: 5.8%
Gearing: 26.50%Offering structure:
International Offering (87.5%)
Public Offer in Singapore, including Reserved tranche (12.5%)
Cornerstone investors:
(% of int’l offering)
Fidelity (5.2%), Al Salam Bank-Bahrain (5.4%), Metro Holdings Singapore (4.5%), Capital Investment & Brokerage Jordan (3.4%)
Selling restrictions:
Reg S only
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S$636m Sabana Shari’ah Compliant REIT IPO
Largest and first Shari’ah certified industrial REIT globally
Second largest REIT IPO in Asia since 2006
Unique Shari’ah Compliant nature of this landmark transaction attracted a whole new set of investors
Attracted quality institutional accounts internationally with a healthy mix between Shari’ah and conventional investors
Cornerstone investors include Fidelity, Capital Bank, Al Salam Bank-Bahrain, Metro Holdings
Orderbook multiple times oversubscribed, with participation from over 100 investors
Attractive yield pick-up of 6.0% over the Singapore risk-free rate
Low gearing of 26.5% vs. an average of 34.4% for Industrial S-REITs
Transaction highlights
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Sabana REIT – benchmarking against peers
12-mth forward DPU yield (%) (5) 8.2% 6.7% 7.3% 8.8% 8.4% 9.1% 6.9%
No. of properties at IPO 15 8 70 12 6 27 15
No. of properties currently 15 93 70 26 6 42 82
Assets at IPO (S$m)(4) 885 617 2,164 319 738 527 439
Assets currently (S$m)(4) 885 4,854 2,164 658 749 915 3,000
Free float at IPO (S$m) 606 240 553 297 417 140 211
GFA at IPO (‘000 sqft) 3,286 2,639(2) 16,368 2,474 3,857 4,593 2,993(2)(3)
GFA (‘000 sqft) 3,286 25,801 16,368 4,359 3,860 7,013 17,849(2)(3)
Occupancy rate (%) 100.0% 95.7% 90.9% 96.0% 100.0% 99.8% 98.1%
(1)
Sources: Bloomberg, Company annual reportsNotes:1. Assuming offering price S$1.052. GFA data not available. Represents net lettable area3. Excludes Pulau Sebarok as this property comprises land only4. Including property values provided by Independent property valuers5. As at 26 Nov 2010, listing date
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Sabana REIT – benchmarking against peers
Weighted average lease term to expiry 3.8 years 4.8 years 2.6 years 4.4 years 6.1 years 4.7 years 5.0 years
Weighted average unexpired lease term 41 years 53 years(2) 49 years 47 years(2) 37 years 41 years 60 years
Current cost of debt 4.5% 3.9% 2.4% 4.2% 4.1% 5.9% 2.4%Current gearing 26.5% 33.5% 38.4% 28.8% 24.7% 42.3% 38.7%Mgmt fee % distributable income 8.2% 10.0% 15.9% 10.6% 9.3% 10.6% 18.5%P / NAV 5.8% 31.3% 25.6% (3.9%) 12.3% 3.3% 3.5%Investment focus Asia Singapore Singapore Asia Asia Asia Asia
Manager’s mgmt base fee0.5% p.a. of deposited property
0.5% p.a. of deposited property
0.5% p.a. of deposited property
0.5% p.a. of deposited property
0.5% p.a. of deposited property
0.5% p.a. of deposited property
0.5% p.a. of deposited property
Manager’s mgmt performance fee0.5% p.a. of NPI (DPU
growth>10%)
0.1% p.a. of deposited
property (DPU growth>2.5%)
3.6% p.a. of NPI
0.1% p.a. of deposited
property (DPU growth>2.5%)
1.5% p.a. of NPI
Capped at 0.8% p.a. of deposited property
3.6% p.a. of NPI
Asset type breakdown by valuation(5)
Sources: Bloomberg, Company annual reportsNotes:1. Assuming offering price S$1.052. A-REIT is weighted by NLA; AA-REIT is weighted by land area3. As at 26 Nov 2010, listing date
52%
4%
44%3%
24%
17%
56% 60%26%
14%
Warehousing & LogisticsOthersChemical Warehousing & Logistics
High-tech Industrial General Industrial
17%
19%
6%
58%
1%
78%
21%
100%
(1)
92%
8%
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Shari’ah Committee scholarsDr Mohamed A. ElgariDr. Elgari is Professor of Islamic Economic at King Abdulaziz University, Jeddah, Saudi Arabia and Former Director of the Center for Research in Islamic Economics, in the same university. He is an Expert at the Islamic Jurisprudence Academy of the OIC and the Islamic Jurisprudence Academy of the Islamic World League and a member of the Shari'ah Council of AAOFI
He is member of editorial board of several academic publications in the field of Islamic Finance and Jurisprudence among them, Journal of the Jurisprudence Academy (of the IWL), Journal of Islamic Economic Studies (IDB), Journal of Islamic Economic (IAIE, London), and the advisory board of Harvard Series in Islamic Law, Harvard Law School
Dr. Elgari is member of numerous Shari'ah Boards of Islamic Banks and Takaful Companies world wide. He authored several books in Islamic finance and published tens of articles on the subject both in Arabic and English. Dr. Elgari is also a frequent speaker in conferences worldwide. Dr. Elgari is the recipient of the Islamic Development Bank prize in Islamic Banking and Finance for the year 1424H (2004)
Dr. Elgari holds a PhD from the University of California and was born in Makkah, Saudi Arabia in the year 1950
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Shari’ah Committee scholars – cont’dDr Obiyathulla Ismath BachaProf. Obiyathulla is professor of Finance and Director of the Management Centre. Prior to joining IIUM, Prof. Obiyathulla was at Malayan Banking Bhd from May 1984 – August 1985. He was an Assistant Professor of Finance at Boston University where he received the Allen E. Beckwith Teaching Award. He teaches finance courses at both MBA and undergraduate levels. The courses taught by him for the MBA Program are Financial Planning & Strategy, International Finance, and Managing Risks with Futures & Options
He is vice-president of the Malaysian Economic Association (MEA) and Committee Member of the Malaysian Finance Association. Dr. Obiyathulla has also been a trainer at several institutions such as the Securities Commission and Central Bank of Malaysia
He has published in numerous local and international journals and presented papers at several international finance conferences. His paper on the Nikkei Stock Index Futures Contract won the 1993 Chicago Mercantile Exchange; Competitive Research Award
He received his DBA (Finance), MBA (High Honors) and MA (Economics) from Boston University and B. Soc. Sc from the University Science Malaysia
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Shari’ah Committee scholars – cont’dDr. Ashraf Bin Md HashimDr. Ashraf Bin Md Hashim is currently an Associate Professor at the Department of Islamic Law, Ahmad Ibrahim Kuliyyah of Laws, International Islamic University Malaysia (“IIUM”). Dr. Ashraf has to his credit, a book and a number of articles relating to Islamic law and Islamic finance published in local and international journals and was a Visiting Research Fellow at the Oxford Centre for Islamic Studies, United Kingdom from November 2006 to August 2007.
Dr. Ashraf has vast experience in providing Shari’ah views on retail and investment banking products, Sukukstructuring and unit trusts and is also actively involved in advising Takaful and Retakaful companies. He is currently a Shari’ah committee member for Al-Rajhi Banking and Investment Corporation (Malaysia) and Securus Data Centre Fund, and was previously a Shari’ah committee member for Takaful Malaysia and Asean Retakaful International Limited, to name a few.
Dr. Ashraf holds a Postgraduate Diploma in Shari’ah Law and Practice from IIUM, a Doctor of Philosophy in Islamic Law from Birmingham University (U.K.), a Master of Arts, Fiqh and Usul al-Fiqh (Jordan) and a Bachelor of Arts, Shari’ah (Madinah) and is proficient in English, Arabic and Malay.
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Shari’ah Adviser - Five Pillars Pte. Ltd.Five Pillars Pte. Ltd. (“Five Pillars”) specialises in Shari'ah advisory, training and structuring products that are Shari'ah compliant. Five Pillars is focused on delivering Shari'ah based solutions to conventional financial institutions like banks, international investment funds, insurance companies, PE funds on the demand side and companies wanting to access funds from Shari'ah investors on the supply side. We also help investment managers identify companies that are Shari'ah compliant for investment purposesFive Pillars has a renowned and reputable team that provides you with a menu of comprehensive solutions to benefit from the Islamic Finance worldSome of our clients include: Reuters PLC – Financial Information services DST International – Fund Management software Temenos – Banking solutions Securas Data Property Fund – Shari'ah compliant fund