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3 Things about Sabana Shariah Compliant REIT Investors Have To Know

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Sabana Shariah Compliant REIT (SGX: M1GU) got listed in Singapore in November 2010 at a price of S$1.05 per unit. It’s been close to four years since, but given Sabana REIT’s relatively small size among other REITs (it has a market capitalisation of just S$712 million currently), investors might not be too familiar with it.

For those wanting to know more about the REIT, here are three quick facts you have to know.

1. World’s largest listed Shari’ah Compliant REIT

As its name suggests, Sabana REIT is compliant with Shari’ah law. This means that Sabana REIT can only receive not more than 5% of its gross revenue from lessees and tenants which are engaged in commercial activities deemed non-permissible under Shari’ah investment principles.

Non-permissible activities include, among others, the provision of financial services based on interest; gambling; manufacture or sale of non-halal products or related products; and manufacture or sale of tobacco-based products or related products.

The REIT’s Certificate of Compliance can be found here.

Being Shari’ah compliant might make it seem that the REIT would be losing out in terms of potential tenants it can rent out to. But any perceived shortcomings are made up from the fact that Sabana REIT’s Shari’ah compliant status enables it to tap into both secular funding and the vast Islamic finance market, which Standard & Poor’s had estimated to be worth around US$1.4 trillion back in 2011. This gives Sabana REIT more flexibility in raising capital as compared to conventional REITs, which can’t access Islamic finance markets.

2. Focused on industrial properties

As of 30 June 2014, Sabana REIT holds a total of 22 industrial buildings in its portfolio which are all located in Singapore. These properties cover approximately 4.5 million square feet of gross floor area collectively and are worth a total of around S$1.2 billion.

The portfolio is divided into four main categories, namely, high-tech industrial, chemical warehouse & logistics, warehouse & logistics, and general industrial. In terms of net lettable area, the largest allocation is in the high‐tech industrial category, which takes up an estimated 46%. In total, the properties are leased to a diversified base of 151 tenants.

The tenants in most of the high-tech industrial buildings are involved in industrial activities such as multimedia manufacturing, data centre operations, and precision engineering. Meanwhile, buildings in the chemical warehouse & logistics arena are in close proximity to Jurong Island, the heart of Singapore’s petrochemical industry.

The warehouse & logistics buildings comprise of space for loading and docking facilities. The buildings are used mainly for storage and distribution of goods and merchandise. Last but not the least, the general industrial portfolio has five industrial buildings with ancillary offices, warehouses and manufacturing facilities.

For the uninitiated, other REITs which focus on industrial real estate include Cambridge Industrial Trust (SGX: J91U) and Mapletree Industrial Trust (SGX: ME8U).

3. Financials

The REIT’s latest set of financials are for the second quarter of 2014. For the quarter ended 30 June 2014, gross revenue increased by 17.6% year-on-year to S$25.3 million on the back of contributions from a recent September 2013 acquisition. In addition, higher gross revenue from its 151 Lorong Chuan property, which was converted into a multi-tenanted lease arrangement in the fourth quarter of 2013, also contributed to the growth.

Unfortunately, Sabana REIT’s income available for distribution decreased by 16.6% to S$13 million, mainly on the back of lower net property income and higher expenses incurred on increased borrowings. Distribution per unit dropped 22.5% to 1.86 Singapore cents, mainly due the lower distributable income and new units issued as part of distribution re‐investment plan.

As of 30 June 2014, the REIT had a net asset value of S$1.09. With its current price at S$1.01, the price-to-book ratio comes up to 0.93 and the distribution yield stands at 8.3%.