Sabana – Phillip

Company Overview

Sabana REIT is a Singapore-based REIT with a mandate to invest in income-producing industrial real estate and real estate-related assets in Singapore and Asia with compliance to Shari’ah investment principles.

• 1QFY12 revenue $19.7mn, NPI $18.5mn, distributable income $14.5mn

• 1QFY12 DPU of 2.26 cents

• Maintain Buy recommendation with unchanged target price of $1.05

What is the news?

Sabana REIT reported another consistent performance, with both gross revenue and net property income increased 8.8% to $19.7mn and $18.5mn, relative to the previous quarter. On the same token, distributable income edged up 4.1% q-q to $14.5mn. This was largely attributable to the full quarter contribution from the purchase completion of the five yield-accretive properties in 4Q11. DPU for the reported quarter was 2.26 cents, forming c.24% of our FY12 DPU estimates. Apart from the results, a new master tenant had committed a ten-year master lease agreement with an option to renew for another five years for the property at 1 Tuas Avenue 4. The lease will commence on 1 April 2012.

How do we view this?

The first quarter result was within our expectation. We noted that higher operational expenditures such as JTC land rents, property tax and utilities costs have partially weighed on the distribution margin over the past three quarters, with 2% dip in each quarter from 80% in 2Q11 to 74% in 1Q12. The new master lease is likely to turn in higher rent from next quarter as the monthly rental rate of $1.11 psf signed by the previous master tenant was lower than the prevailing market rent in our view.

Investment Actions?

As the new master lease is yet to be incorporated into our model, we therefore have our target price unchanged at $1.050 and maintain our BUY recommendation.