Interest rate sensitivity of Sabana

Like a moth to a flame 

Burned by the fire 

My love is blind 

Can't you see my desire?

 - Janet Jackson

So if you have read my previous post about this particular "Hot sweet young thing " friend who recommended me to buy Sabana, she is back to recommend me! After Sabana's price having dropped further to $0.38 from the price of $0.51 when she recommended me. (Due to rights).

Hot Sweet Young Thing ( onwards called HSYT) said:" COme oN, a lousy business is a good investment at the right price. Can you calculate how Sabana will be affected by the rise in interest rate instead of just amplifying what is thrown around about a rise in interest rate and REITS are going to die...PleAse!"

Being a HSYT does have her privileges....so....

To calculate the debt of Sabana post rights

Using the above to calculate Debt

To calculate the distribution of Sabana post rights

With the 3 new purchases, the increment in distribution is assumed to be $6.15 million per year. This figure is attained from investmentmoats.  I agree with his way of calculating this figure. I emailed Sabana investor relations for a post -rights forecasted distribution but they replied that they were unable to provide and told me to wait for the Offer Information Statement ( together with the application forms) which will include more information.

Pre-rights latest distribution annualised based on the table below = 4.77cents per unit.
Pre-rights total number of shares  = 778 million.
Pre -rights total distribution annualised per year = $37.1 million ( $0.0477 times 778 million shares)

Lastest distribution pre-rights for annualised DPU

Interest rate sensitivity of Sabana post rights

Interest rate sensitivity

By the way, it is quite irritating that Sabana isn't able to give a forecasted DPU while other Reits do give. This makes it troublesome to do the above. Arrgh the privileges of a HSYT....

Interest rate rise and interest coverage

Since Sabana Reit has already fallen so hard, why not buy it as there should be enough of a margin of safety ( P/B 0.66) and all bad news have already been priced in. Yeah why not, good idea!

Except that the Federal Reserve has indicated a few rate rises next year and here is the picture.

By compiling the interest coverage ratios of the REITs, it can be seen that Sabana Reit has the lowest interest coverage ratio of 2.63 and any increase in finance cost would hit it hardest.

Anyway,  I do think that concerns about gearing is over-rated  as looking at Ireit, it has a whopping high gearing of 42.5%, one of the highest among the REITs, and yet its interest coverage is also one of its highest and its dividend yield too. Besides, some REITs engage in issuing perpertual bonds which are not reflected in their debt.

Nothing interesting to buy so far!