Sabana REIT

Sabana REIT: Lacklustre set of 3Q14 results, as DPU fell to 1.81¢ (-23.9% y/y, -2.7% q/q), representing an annualized yield of 7.2%. Gross revenue of $25.1m (+16.3% y/y, -0.9% q/q) was led by contributions from the acquisition property which was acquired in Sep ‘13 and higher gross revenue from 151 Lorong Chuan, which was converted into multi-tenanted lease arrangement in 4Q13. Net property income however came in at $18.0m (-9.8% y/y, -1.6% q/q) weighed by a 342.4% rise in property expenses at $7.1m. This was due to higher property expenses from higher property tax, maintenance, utilities and applicable land rent expenses, and lease management fees being charged to the 15 properties acquired during IPO, following the expiry of the three-year waiver period in 4Q13. Property consultant DTZ Research highlighted that both average capital values and rents for conventional industrial space remained unchanged in 3Q14. Seperately, leasing activity was stable in 3Q14 as industrialists’ real estate decisions remained largely guided by cost containment and longer cost savings objectives. Overall, Sabana expects market conditions to remain challenging, and the industrial REIT aims to continue intensifying its marketing and leasing efforts to improve its portfolio occupancy, while also being on the lookout for selective acquisitions. Sabana expects to see rental contribution from the proposed acquisition of 10 Changi South Street 2, in the later part of 4Q14, subject to approval from JTC. For 4Q14, Sabana will have three master leases expiring and the REIT is in the process of signing new master leases for two of the three properties, and expects to convert the remaining one into a multi‐tenanted property. Portfolio occupancy stood at 91.8%, versus the 90.8% in 2Q14, with a weighted average lease term to expiry of 1.5 years. Aggregate leverage was 37% with weighted average debt tenor of 2.3 years The REIT currently trades at 0.93x P/B and an annualized yield of 7.2%, versus industrial peer average of 1.1x P/B and 7.3% yield.