Sabana – Phillip

Income diversification from the newly acquired

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.

• Acquisition of 23 Serangoon North Avenue 5 at $61.0mn
• DPU accretion resulting from debt financing
• Maintain accumulate with unchanged target price of $1.04

What is the news?

Sabana REIT acquired 23 Serangoon North Avenue 5 at S$61.0mn. The property is a purpose-built five storey light industrial building with a mezzanine level, located within Serangoon North Industrial Estate. It boasts a remaining tenure of approximately 44.2 years and GFA of 159,384 sq ft. Upon completion, a triple net master lease of three years, with an option to renew for another three years will be entered with the vendor, Ban Teck Han Enterprise Co Pte Ltd. The acquisition is expected to complete in the fourth quarter of 2012.

How do we view this?

As the purchase is wholly funded by debt, DPU accretion will take place in the fourth quarter onwards. With the new acquisition, asset and tenant diversification is further improved and also reduced the reliance of income stream on any single asset or lessee. Post acquisition, the leverage ratio is expected to increase from 34.1% to c.37.6% based on the announcement. This leaves approximately S$25.9mn of debt capacity for further acquisitions. During the conference call for 2Q12 results briefing, the management guided that either one or two properties may be added to the portfolio this year. In this regard, investors could anticipate another industrial property to be added for the rest of the year.

Investment Actions?

At this juncture, we are waiting for more detailed information before incorporating the new property to our model. We therefore maintain our accumulate call with unchanged price target of $1.04 with the use of dividend discount model.