Sabana Shari’ah REIT Sees Distributions Grow

Sabana REIT logoThe world’s first Shari’ah compliant REIT, Sabana Shari’ah REIT (SGX: M1GU), announced third-quarter results that saw its distributions grow.

The REIT currently has 22 properties (with total gross floor area of 4.5 million sq. ft.) in its S$1.2b portfolio, distributed across four main industrial property segments – high-tech industrial, chemical warehouse and logistics, warehouse and logistics, and general-industrial.

In the quarter, the REIT’s gross revenue increased 6.3% year-on-year to S$21.6m.

However, property expenses increased by a third to S$1.6m, which resulted in net property income that grew at a slower pace of 4.6% to S$20m. Property expenses include service, repairs and maintenance; property and lease management fees; and marketing and lease administration expenses.

Meanwhile, distributable income went up 3.7% to S$15.6m. Distributions per unit (DPU), on the other hand, only managed a 1.7% increase to 2.38 cents.

With REITs, investors should keep an eye on changes in the balance sheet due to their highly-leveraged capital structures. For Sabana REIT, it was a combination of improvements and negatives.

Aggregate leverage declined from 38.3% a year ago to 37.5%, despite total borrowings having gone up 5% to S$455.3m. Its average all-in cost of financing (i.e. interest rates) decreased to 4% from 4.3% in the previous year but its interest cover worsened from 5.5 times to 5 times.

There were 20 properties with 100% occupancy rates, while the remaining two had an average occupancy of 72.4%.

Whilst it is good to see a large majority of the REIT’s properties being fully-occupied, investors should note that two-fifths of its leases (weighted by gross revenue) will expire in 2013. It will be important to follow the company’s progress in renewing the leases.

On that front, master leases on five different properties will be expiring on 25 Nov. One master lease will be renewed, while the remainder will be converted into a multi-tenanted lease model.

Sabana REIT sees “capital values and rents likely to hold firm” in the industrial property sector. They cited research from DTZ and Colliers in support of their view. The former “reported that amid uncertainty in the manufacturing economy, rents across industrial space remained stable in 3Q 2013 and capital values registered zero growth.”

The latter “is of the view that industrial rents to remain flat for prime conventional industrial premises for the rest of 2013, with marginal upside for high-specs space and business park space.”

At S$1.10, Sabana REIT is valued at one times book value. With an annualised DPU of 9.44 cents, the units have a distribution yield of 8.6%.

Click here now  for your  FREE subscription to Take Stock Singapore, The Motley Fool’s free investing newsletter. Written by  David Kuo ,   Take Stock Singapore  tells you exactly what’s happening in today’s markets, and shows how you can GROW your wealth in the years ahead.  

The Motley Fool’s purpose is to help the world invest, better. Like us on Facebook  to keep up-to-date with our latest news and articles.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chong Ser Jing doesn’t own shares in any companies mentioned.