Sabana Shari’ah Compliant Industrial REIT (Sabana) started trading on 26 November 2010 in Singapore after raising S$533.4 million (US$404 million) in an IPO. Sabana is the only Shari’ah-compliant REIT listed in Singapore and also the largest listed Shari’ah-compliant REIT by total assets globally. Shari’ah-compliant investments can be sold to both conventional investors and those that observe the principles of Islamic finance.
Sabana’s initial property portfolio comprises 15 industrial properties (five of which were originally owned by the sponsor) valued at just over S$850 million (US$644 million). These are located across Singapore and have an aggregate gross floor area of approximately 3,286,220 square feet.
The sponsor for the REIT is the Freight Links Group (Freight Links), an international total logistics solutions provider in Singapore and the Asia Pacific region. Freight Links was established in 1981 and listed on Singapore’s Sesdaq in 1995, transferring to the SGX Main Board in 1998. At the time of writing, Freight Links had a market capitalization of about S$190 million (US$144 million).
The manager of the REIT is Sabana Real Estate Investment Management, which is 51% owned by Freight Links, with 45% owned by senior executives of the manager and 4% by Tarian Capital, a company formerly linked to Emirates Investment Group of Dubai.
Shari’ah investment principles and procedures are consistent with Islamic law. In particular, these apply to asset selection, to ensure that the total rental income from lessees and tenants engaging in activities which are non-permissible under Shari’ah guidelines (and which include those relating to conventional financial and insurance services, gaming, non-halal production, tobacco-related products, non-permitted entertainment activities and stockbroking in non-compliant securities) does not exceed 5% per annum of the REIT’s gross revenue; and financing, investment, deposit facilities, insurance and risk management considerations, to ensure that these are Shari’ah-compliant, where commercially available.
In particular, the REIT is required to seek Takaful (an Islamic insurance concept which observes Shari’ah-compliant principles, such as profit sharing for insurance coverage purposes), again, where available.
The REIT is advised by an external committee that comprises three independent Shari’ah scholars selected by the manager based on the advice of a Singapore-based Islamic finance advisory firm, also appointed by the manager.
Sabana will be the fourth Shari’ah-compliant REIT listed in Asia. All others are listed in Malaysia. These include Axis REIT, an office property trust with a market capitalization of about US$260 million equivalent, as well as Al-Hadharah Boustead REIT and Al-Aqar KPJ REIT, which invest in plantation and healthcare assets respectively.
Sabana managed to secure commitments from four cornerstone investors in its IPO to purchase 15.5% of outstanding units. These include Al Salam Bank-Bahrain, a bank listed in Bahrain and Dubai and operating under Islamic principles (for about US$23 million equivalent); a wholly-owned subsidiary of Capital Bank, which is headquartered in Jordan (for about US$14 million equivalent); a unit of Fidelity (for about US$22 million equivalent); and Meren, a wholly-owned subsidiary of Metro Holdings, an SGX-listed property and retail company operating in China, Indonesia and Singapore (for about US$19 million equivalent).
The IPO was initially marketed on the basis of a range of S$1.00 to S$1.10 per unit, and ultimately priced at the middle of the range at S$1.05, representing a forecast distribution yield of 8.22% for 2011 and of 8.25% for 2012 – although this includes units to be issued for 80% of the management fees (and assumed to be issued at the offer price), as well as a performance fee waiver on the part of the manager for 2011. The units were issued at a premium of 5.8% to NAV.
HSBC acted as sole financial adviser for the offering and as joint global coordinator, joint issue manager and joint bookrunner (underwriting 50% of the offering) alongside UOB (underwriting 33%) and Daiwa (underwriting 17%). The fees for the IPO were 3.5%, including a discretionary incentive fee of up to 0.5%, with brokerage of 1% paid by investors.
Allen & Gledhill were legal advisers to the manager, with Allen & Overy advising the underwriters and Shook Lin & Bok advising the trustee, which is HSBC. KPMG are the reporting accountants and tax advisers. Cushman & Wakefield and CKS Property Consultants acted as independent property valuers, with DTZ Debenham Tie Leung providing market research. The unit registrar and unit transfer office for the REIT is Boardroom Corporate & Advisory Services. Five Pillars acted as Shari’ah consultant.
The institutional placement represented 85.1% of the IPO, with 14.9% offered to retail investors, including 9.8% reserved for directors, management, employees and business associates of the manager.
Units in Sabana closed at S$1.02 on the first day of trading, about 2.9% below the offer price.