Sabana Shariah Compliant REIT Is Singapore’s Worst-Performing REIT Over The Past Year: What Investors Should Know About Its Challenges

There are 38 real estate investment trusts (this includes the stapled trusts) in Singapore’s stock market.

If we exclude Saizen Real Estate Investment Trust (SGX: T8JU), which is in the midst of a reverse takeover, the REIT with the worst performance over the last 12 months is Sabana Shariah Compliant REIT (SGX: M1GU), whose units have fallen by 49% in price to S$0.36 currently.

Let’s have a look at one of the bigger problems plaguing the REIT’s business. 

A quick introduction

Sabana REIT is unique for being the world’s first Shariah-compliant REIT; Shariah is the moral code and religious law of the Islamic religion and Sabana REIT is managed according to Shariah investment principles and procedures.

The REIT’s portfolio consists of 21 industrial properties in Singapore. These properties fall into four main categories, namely, high-tech industrial, warehouse and logistics, chemical warehouse and logistics, and general industrial.

The challenges

Sabana REIT’s latest earnings was for the third quarter of 2016. In that period, the REIT saw its gross revenue decline by 9.7% to S$23.0 million while its net property income shrank by 24% to S$13.9 million. The income available for distribution fared worse, as it fell by 31.7% to S$8.86 million, resulting in a 32.2% drop in the distribution per unit (DPU) to 1.20 cents.

Although the REIT’s portfolio occupancy rate managed to step up from 88.8% in the second quarter of 2016 to 89.2%, the number is still lower than the 91.7% seen a year ago.

In Sabana REIT’s earnings release, it cited market researcher Knight Frank’s projections for a decline in industrial rents in Singapore of 6% to 8% in the fourth quarter of 2016. The REIT also commented 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.”

Put another way, Sabana REIT’s business environment is in a condition of low demand and oversupply. That’s one of the big challenges the REIT is facing.

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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 Lawrence Nga doesn’t own shares in any companies mentioned.