Sabana REIT

Sabana REIT: Sabana REIT’s 4Q15 DPU slumped 15.7% y/y to 1.5¢, in tandem with lower distributable income of $11m (-14.4%). This brought FY15 distributable income to $50.1m (-2.9%) and DPU to 6.85¢ (-6.5%).

For the quarter, revenue declined 2.9% to $24.6m, depressing NPI by 10.3% as lower rental reversions were exacerbated by increased property expenses on the conversion of three more master leases into multi-tenanted leases.

Occupancy dipped fell 4ppt q/q to 87.7%, while weighted lease expiry lengthened to 3.2 years from 1.7 years in the previous quarter.

Aggregate leverage was 41.7% with fairly high all-in financing cost of 4.2%.

Sabana REITs portfolio suffered a 9.3% revaluation loss of $116.7m on its investment properties, after taking into account sluggish economic growth, and the oversupply of industrial space. Consequently, NAV fell to $0.89 from $1.06 a year earlier.

Negative rental reversions from the renewal of some master leases, increased vacancies and heightening operating expenses arising from the conversion of three more properties into multi-tenanted buildings are expected to weigh on near-term financial performance.

Nevertheless, with the completion of divestments of 3 Kallang Way 2A and 200 Pandan Loop in 1Q16, management is expecting to use the $53m net proceeds to pare down debt, which will bring aggregate leverage to ~39%.

Four master leases will expire in 11 months. Of these, one is expected to be converted into a multi-tenanted building.

Sabana REIT is currently trading at 9% annualised 4Q15 yield, and 0.75x P/B.