Sabana Shariah Compliant REIT’s Latest Earnings: Challenging Conditions Ahead

Sabana Shariah Compliant REIT (SGX: M1GU) released its fiscal third-quarter earnings (for the three months ended 30 September 2016) yesterday evening.

As a quick background, the real estate investment trust is unique for being the world’s first Shariah compliant REIT. Shariah is the moral code and religious law of the Islamic religion and the REIT is managed according to Shariah investment principles and procedures.

Sabana REIT focuses on industrial properties. The REIT’s portfolio currently consists of 21 properties in Singapore, across the high-tech industrial, warehouse and logistics, chemical warehouse and logistics, and general industrial sectors. The REIT has total assets of S$1.1 billion.

Financial highlights

Here’s a rundown on some of Sabana REIT’s latest financial figures:

  1. Gross revenue was S$23.0 million in the reporting quarter, down 9.7% compared to the previous year.
  2. Net property income (NPI) suffered a sharper dive, declining 24% to S$13.9 million during the same period, mainly due to higher operating expenses.
  3. As a result, the REIT’s distribution per unit (DPU) for the quarter also tumbled by 32.2% to 1.20 cents based on a unit count of 739.8 million units.
  4. At the end of the reporting quarter, the REIT had a net asset value per unit of S$0.81, down 23.6% from the S$1.06 seen a year ago.

Foolish investors may also want to keep an eye on a REIT’s debt profile. The debt profile may provide clues on how a REIT is funded and its sensitivity to the interest rate environment. These are summarized for Sabana REIT below:

Source: Sabana REIT’s earnings presentations

You can see that Sabana REIT’s leverage ratio has climbed over the past year despite a decrease in  total borrowings from S$485.8 million to S$439.7 million. This indicates that the value of the REIT’s properties have dropped.

Investors may want to know that Sabana REIT has $219.7 million in loans that are maturing in 2017 and 2018. The progress of refinancing the maturing debt, along with the new interest rates obtained, would be something to observe.

Operational highlights

Sabana REIT ended the reporting quarter with a portfolio occupancy rate of 89.2% and a weighted average lease expiry (WALE) of 2.5 years. This compares to the self-same figures of 91.7% and 1.7 years during the same period last year.

On the outlook ahead, the REIT commented in its earnings release that “industrial rents are expected to be under pressure with the onset of the softening demand and high supply of industrial space in the market.” It also “anticipates market conditions to remain challenging.”

The chief executive of Sabana REIT’s manager, Kevin Xayaraj, had the following to add:

“We are constantly thinking of ways to create value amidst the changing economic climate and operating conditions. We will also continue to diligently execute our strategy of proactive asset, risk and capital management to achieve sustainable distributions for the Unitholders.

On the Trust’s portfolio occupancy, we are very focused on filling up any available space within the shortest time possible and are consistently actively engaging with tenants to manage our lease expiries.”

Sabana REIT’s units closed at S$0.525 each on Monday. This translates to a historical price-to-book ratio of 0.65 and a trailing distribution yield of 10%.

For more investing insights and to keep up to date on the latest financial and stock market news, you can sign up now for a FREE subscription to The Motley Fool's weekly investing newsletter, Take Stock Singapore. It will teach you how you can grow your wealth in the years ahead.

Also, like us on Facebook to follow our latest hot articles. The Motley Fool's purpose is to help the world invest, better.

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.