Sabana REIT is a Singapore-based REIT with a mandate to invest in income-producing industrial real estate and real estate-related assets in Singapore and Asia with compliance to Shari’ah investment principles.
- 2QFY12 revenue $20.3mn, NPI $19.1mn, distributable income $14.5mn
-2QFY12 DPU of 2.27 cents
- Downgrade to accumulate with revised target price of $1.04
What is the news?
Sabana REIT handed out a steady report card. Gross revenue and net property income rose 3.5% and 3.1% q-q to $20.3mn and $19.1mn respectively. Distributable income inched up 0.3% q-q to $14.5mn. 2Q12 DPU was 2.27 cents. For the first 6-month, DPU tallied up to 4.53 cents, constituting 50.1% of our FY12 DPU estimates.
How do we view this?
No surprise, the second quarter result was in-line with our expectation. As the new lease at 1 Tuas Avenue 4 was signed under single net master lease, property tax and land rent are payable by the trust. Although the new lease was secured at a slightly higher rent than the prior defaulted triple net master lease, we think the deal is not favourable as higher property tax and land rent are likely to cream off the difference in the increased rent against the backdrop of rising industrial property prices.
Investment Actions?
The DPU was lowered from 2012 to 2016 by 0.9% on average as property tax and land rent are payable by the trust under the single net master leases. As a result, our target price is revised down to $1.040. We downgrade our recommendation to accumulate as there is minimal upside to our target price. However, the attractive yield is still compelling for the investor to accumulate given the volatility in stock market and uncertainty in global economy.
In search of high yielders
Given the volatility in stock market and uncertainty in global economy, some investors are shifting their asset allocation from growth stocks to high-yielding stocks to seek regular and stable dividend payouts. Low interest rate and high inflation environment in Singapore has further compounded the situation. Hence, more investors are now hungry for defensive stocks with sustainable earnings and dividend distribution. S-REITs match the above criteria and thus resulted to a superb run-up in prices across the board. Sabana REIT is not exceptional. The stock price has been hitting new 52-week high since Mar-2012 and is getting closer to our price target. This trend is likely to continue going forward on the back of current phenomenon.
Downgrade to accumulate with revised target price of $1.04
To reiterate, we have assumed a payout ratio of 94.0% from 2013-2016 and expect occupancy to drop at the end of 2013 as the head tenants may not renew the contracts when the bulk of the master leases expired. Hence, FY13 DPU will slide down before reversing the fall.
We have slightly adjusted up the rent for the new master lease at 1 Tuas Avenue 4. In tandem, the new master lease and 6 Woodlands Loop are both under the single net master leases, land rent and property tax are factored into the property expenses. This lowered our DPU from 2012 to 2016 by 0.9% on average. As a result, our target price is revised down to $1.040. We downgrade our recommendation to accumulate as there is less upside from the price appreciation with respect to our target price. However, the attractive yield is still compelling for the investor to accumulate given the current market climate.
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