Sabana Reit H1 DPU up 1.3% to S$0.0161 on ‘strong operational performance’

SABANA Industrial Real Estate Investment Trust (Sabana Reit) posted a distribution per unit (DPU) of S$0.0161 for the first half of its fiscal year ended Jun 30, 2023, up 1.3 per cent from S$0.0159 in the corresponding year-ago period, its manager announced on Wednesday (Jul 19).

Gross revenue for H1 was up 23.2 per cent on year to S$55.3 million from S$44.9 million, mainly due to higher portfolio occupancy of 93.9 per cent. This is 2.6 percentage points higher than the 91.3 per cent recorded in the corresponding year-ago period, and a multi-year high, the manager said.

“The improvement in occupancy rate is underpinned by the strong leasing momentum backed by robust demand from third-party logistics providers in the first half of 2023,” it said.

In a media briefing on Wednesday, Donald Han, chief executive of the manager, said the Reit recorded steady or improved occupancies across all properties on Jun 30 from six months before. But revenue growth was largely offset by higher property expenses, which grew year on year to S$28.1 million from S$17.8 million. This included higher utility costs. Net property income rose 0.5 per cent to S$27.2 million from S$27 million. 

Total amount available for distribution came in at S$17.8 million, 3.9 per cent higher than the preceding year’s S$17.1 million.

“Despite operational challenges and intensified upheaval in recent months, we have stayed focused and delivered another set of impeccable financial results,” Han said.

“Equally important, our proactive tenant management and leasing strategy, including our focus on rentals, has enabled us to protect our valuation and NAV (net asset value), despite the challenge of declining land tenure.”

The Reit achieved an overall higher portfolio valuation of S$887.5 million as at Jun 30, 2023, from S$885.7 million as at end-December 2022. The Reit is “firmly focused on extracting value from (its) existing portfolio”, Han added.

The Reit is in the second phase of its strategy to “grow value”; it plans to undertake asset-enhancement initiatives and selected rejuvenation of its portfolio.

It is also looking to move into the next phase of the strategy, where it would explore potential yield-accretive acquisitions, including overseas ones. Han said it is hoped that such acquisitions would include assets with longer lease tenures or freehold tenures.

Sabana Reit’s rental reversion for H1 came in at a record 20.1 per cent. It also posted a record 27.1 per cent rental reversion for Q2. The manager added that it has also renewed and replaced 52.5 per cent of its leases expiring in FY2023, with another 23.6 per cent under negotiation or lease documentation.

Han said the manager continues to be confident about certain segments such as warehouse and logistics. Segments like the high-tech industrial segment, however, are dependent on other markets such as the office market.

“If you see a slowdown in the office market, then you see backroom operations starting to slow down as well. And that will impact your business park and your high-tech in that sense,” he said, adding they are keeping an eye on the high-tech segment.

“We want to on-board tenants, and we will maintain our rates as competitive as possible to on-board tenants.The key is really to drive occupancy, and, at the same time, ensure that we end this year with a strong showing,” he said.

As at end-June, aggregate leverage stood at 32.5 per cent, and weighted average all-in cost of borrowing was 3.9 per cent, with 82.2 per cent of total borrowings hedged to fixed rates. The Reit’s weighted average debt maturity stands at 3.3 years, with no refinancing requirements until Q4 2025.

Sabana Reit’s independent auditor indicated an emphasis of matter as there was material uncertainty that may cast “significant doubt” on the Reit’s ability to continue as a going concern, depending on the outcome of an extraordinary general meeting (EGM) requisitioned by activist investor Quarz Capital.

Quarz is proposing that Sabana Real Estate Investment Management be removed as the Reit’s manager, which could affect financing arrangements with various lenders.

The High Court on Wednesday dismissed the originating application in which ESR Group, the ultimate owner of Sabana Reit’s manager, sought to have Quarz’s requisition rendered “invalid and/or ineffectual”. ESR was also unsuccessful in seeking a permanent injunction restraining the manager from taking steps to convene an EGM, pursuant to Quarz’ requisition.

ESR said on Wednesday night that Quarz’s resolution “is merely a direction to the trustee to explore the option of internalisation”, and “not for the immediate implementation of internalisation”.

“Removing the manager now will cause significant unitholder value destruction and appointing a replacement is estimated to take more than one year, with unitholders bearing the costs,” it said.

The EGM date has been changed. It will now be held at 10am on Aug 7.

Units of Sabana Reit closed at S$0.43 on Tuesday, before a trading halt was called on Wednesday.