Sabana – Phillip

Above our expectation!

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.

• 4Q12 (FY12) revenue S$21.5mn (S$81.8mn), NPI S$20.2mn (S$76.9mn), distributable income S$15.4mn (S$59.4mn)
  
• 4Q12 (FY12) DPU of 2.41 cents (9.28 cents)
  
• Maintain Neutral with revised target price of $1.190
  

What is the news?

Sabana REIT reported another credible set of results for 4Q12. Fourth quarter DPU was 2.41 cents (+11.1% y-y and +3% q-q), bringing the total FY12 DPU to 9.28 cents (-2.6% y-y). Gross revenue and net property income (NPI) came in at S$81.8mn (+6.3% y-y) and S$76.9mn (+5.3% y-y) for FY12 respectively. The increase in revenue and NPI stemmed from the six properties acquired over the period between Nov-11 to Oct-12. The property portfolio was revalued at S$1.1bn, registering ~S$25.3mn revaluation gains. Portfolio occupancy was maintained at 99% level.

How do we view this?

FY12 DPU exceeded our estimates by 5%, partly due to lower-than-expected finance expenses. The revaluation surplus boosted the debt headroom to ~S$50mn for future acquisitions. Occupancy level will be tested this year subject to the renewal of master leases expiring in end of 2013. On the brighter spot, we do see significant positive rental reversions from the expiring master leases to partly offset the possible drop in occupancies.

Investment Actions?

We fine-tuned our assumptions and rolled over our estimates to FY13 and include FY17 to our model. These raised our price target from S$1.150 to S$1.190. We reckon the renewal and replacement risks may suppress the price to grind higher until a clearer picture can be painted on the expiring master leases. We will then re-rate Sabana REIT when relevant updates stream in. Nevertheless, attractive FY13 yield of 8.0% will support the stock price.