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Why Has Sabana Shariah Compliant REIT’s Unit Price Fallen To A 52-Week Low?

The last 12 months haven’t been kind to Singapore’s stock market as seen in how the Straits Times Index (SGX: ^STI) has slipped by 15% to 2,809 points currently.

But if you thought that was bad, there have been stocks that have fared even worse. One such stock is Sabana Shariah Compliant REIT (SGX: M1GU) – its units have fallen by 35% in price over the past year to S$0.56 at the moment. This price also happens to be a 52-week low for the REIT.

For some background, Sabana REIT, which is sponsored by the small conglomerate Vibrant Group Ltd (SGX: F01), is actually the world’s first and largest Shariah compliant REIT. Shariah is the moral code and religious law of the Islamic religion.

Sabana REIT’s portfolio currently comprises of 21 industrial properties in Singapore that have a collective net lettable area (NLA) of 3.60 million square feet.

With that, let’s look at some of the possible reasons behind Sabana REIT’s dreary stock market performance over the past year:

1. Worsening results over the past few years

In the first-quarter of 2016, Sabana REIT’s net property income had slumped by 18.4% year-on-year to S$15.2 million. The REIT had suffered from negative rental reversions and increased vacancies during the quarter. This led to a 25% drop in the REIT’s distributions per unit from 1.78 cents a year ago to 1.33 cents.

Sabana REIT’s performance in the first-quarter of 2016 is a continuation of a multi-year trend – that of falling net property income and distributions.

Sabana Shariah REIT net property income and distribution table
Source: Sabana REIT’s earnings releases

As the table above shows, the REIT’s net property income and distribution per unit have fallen since 2013.

2. A deteriorating balance sheet & bleak outlook

It’s not just the REIT’s net property income and distributions that have worsened over the years – its financial health has too.

In the table below, you can see how Sabana REIT’s aggregate leverage and interest cover have changed since 2012. The general trend is that the REIT’s leverage has increased while its interest cover has declined.

Sabana Shariah REIT aggregate leverage and interset cover
Source: Sabana REIT’s earnings releases

Meanwhile, in the REIT’s 2016 first-quarter earnings, management commented that “industrial property prices in Singapore fell at their steepest pace in over two years in [the fourth-quarter of 2015] and analysts are pointing to further weakness ahead.” Sabana REIT also warned that “overall rentals for industrial space are likely to remain under downward pressure.” Put simply, the REIT has to contend with challenging market conditions in the near future, at least.

Falling or low stock prices may make shares look like bargains, but investors should not focus solely on that. It is crucial that investors perform due diligence and determine if a share’s underlying business fundamentals are still intact and if its valuation makes sense at current prices.

In the case of Sabana REIT, its business performance over the past few years have been weak and it sees some difficult times ahead. Will the REIT’s manager be able to bring  it out from the pits? Only time will tell.

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