Sabana REIT – UOBKH

Largest Shari’ah-Certified REIT Globally

Sabana Shari’ah Compliant REIT (Sabana REIT) is a Singapore-based industrial REIT established to invest in industrial properties across Asia. It is the first fully certified Shari’ah-compliant S-REIT in Singapore and possibly the largest Shari’ah certified REIT globally. Its portfolio comprises 15 industrial properties spread across Singapore, with an aggregate GFA of about 3.29m sf.

Initiate with BUY. We initiate coverage on Sabana REIT with BUY and a target price of S$1.20 based on the dividend discount model with a required rate of return of 8% and a terminal growth rate of 2%.

Early-mover advantage to tap larger base of Islamic funds and investors. Sabana REIT is the first fully Shari’ah-certified REIT in Singapore and we believe it is the world’s largest Shari’ah-certified REIT. The REIT is also compliant with Middle Eastern standards for Shari’ah instruments and will be able to access the estimated US$1trillion Islamic financial market.

Above-average dividend yield of 8.9%. We forecast Sabana REIT will have 2011 dividend yield of 8.9%. This is 100bps higher than the average FY11 dividend yield of 7.9% for industrial S-REITs and higher than the 8.4% and 6.9% FY11 trading yields for the 2010-listed Cache Logistics Trust and Mapletree Industrial Trust respectively.

Quasi office and specialised storage play. About 59% of the portfolio comprises high-tech industrial properties, which represent a late-cycle play on the office segment as high-tech industrial space acts as an alternative to office space when office rentals start to rise. About 17% of the portfolio is concentrated in the chemical logistics space, which is a highly specialised and regulated field. In our opinion, the focused nature of high-tech and chemical warehousing properties that account for about 75% of the portfolio would result in sticky tenants.

Leasing structure provides downside protection. The triple-net master-lease structure of Sabana REIT will reduce income volatility and protect the portfolio from underlying vacancies. The tenant profile of Sabana REIT consists of 14 tenants with master-leases and one multi-tenanted facility with rental protection.