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.

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.

• Factored in the yield-accretive acquisition of 23 Serangoon North Avenue 5
  
• Maintain accumulate with revised target price of $1.07
  

What is the news?

Sabana REIT had concluded the acquisition of 23 Serangoon North Avenue 5 at S$61.0mn. The purchase was partially funded from the S$80.0mn Convertible Sukuk at a rate of 4.5%. Besides that, the additional Murabaha

facilities of $258.6mn were refinanced in August at a lower interest rate of 4.1% relative to the existing all-in cost of 4.4%.

How do we view this?

By factoring the new purchase and interest cost-savings to our model, we raise our price target from S$1.04 to S$1.07. Post acquisition, the gearing ratio is expected to hit c.37.6% based on the earlier announcement and this translates to c.S$25.9mn of debt headroom. With the first Convertible Sukuk successfully taken up by institutional investors, we reckon it will pave the path for future debt financing other than conventional loans. Although Convertible Sukuk is a cheaper alternative compared to equity fund raising, we do not rule out Sabana REIT to do a private placement or rights issuance given sizeable property acquisitions going forward.

Investment Actions?

We maintain our assumption of having the payout ratio at 94.0% from 2013-2016 and expect occupancy to fall at the end of 2013 as the head tenants may choose not to renew the contracts when the bulk of the master leases expired. Hence, FY13 DPU will slide down first before reversing. If the payout ratio is taken out from our assumption, our price target could have jumped to S$1.13. Upside risks may come in the form of potential positive rental reversion from the properties that are expiring in 2013 and revaluation surplus of its portfolio for FY12.

Despite the price has performed exceptionally well and exceeded out price target, the high forward yield of 7.6% is likely to remain compelling among the S-REITs universe given the current yield-starved period. The yield spread against 10yr bond yield is around 6.2% and thus Sabana REIT’s trading yield may be compressed further as being one of the high-yielding securities with stable and sustainable income stream. Maintain Accumulate.

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.

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.

Full Year Results

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.

• 4Q11 (FY11) revenue $18.1m ($76.9m), NPI $17.0m ($73.1m), distributable income $13.8m ($60.6m)

• 4Q11 (FY11) DPU of 2.17 cents (9.53 cents)

• Maintain Buy recommendation with target price revised up to $1.05

What is the news?

Gross revenue and net property income rose 3.8% and 2.6% q-q to $18.1mn and $17.0mn in 4Q11 respectively. Distributable income was $13.8mn, 1.4% q-q higher than preceding quarter. The increase in top- and bottom-lines was due to the contribution from the new properties. The interest cost for the credit facilities used to fund the new purchases was financed at 3.4%-3.9%, lower than the 4.8% of IPO tranche. DPU for the reported quarter was 2.17 cents, bringing DPU for FY11 to 9.53 cents. This constitutes c.94% of our FY11 DPU estimates.

How do we view this?

Having the average all-in financing cost moderated down to 4.4%, this would translate to additional cost savings and would further boost the DPU. FY11 DPU of 9.53 cents was much in-line with our expectation. As the transactions of the new properties were completed in the middle and end of 4Q11, we would expect full quarter contribution in 1Q12.

Investment Actions?

To reiterate, we assume occupancy to drop in 2013 as the head tenant may not renew the contract when the bulk of the master leases expired. Hence, FY13 DPU will slide down but recover in FY14 and FY15. As Sabana REIT’s FY ended in Dec, we rollover and include FY16 estimates to our forecasts. With impending leases only to expire in 2013, we maintain our BUY recommendation with the target price revised up a clip to $1.05.