Sabana Reit H1 DPU up 7.4% to S$0.0159 amid ‘improved’ portfolio value

SABANA Industrial Real Estate Investment Trust (Sabana Reit) on Wednesday (Jul 20) posted a distribution per unit (DPU) of S$0.0159 for the first half of its fiscal year ended June, up 7.4 per cent from S$0.0148 in the corresponding year-ago period. 

Donald Han, chief executive of Sabana Reit’s manager, said that the company has “improved” on its portfolio value over the past 6 months, which has translated to a higher net asset value per unit and higher net property income. “Together, these have enabled us to reward unitholders with a higher DPU,” he added.

“We’ve been in pole position in the industrial real estate investment trust (Reit) space in Singapore,” Han said at a briefing accompanying the results announcement.

He noted that Sabana Reit had outperformed key indices in the first 6 months of the year, with its unit price rising 2.3 per cent for a total return of 5.8 per cent for H1. In comparison, the benchmark Straits Times Index (STI) dipped 0.7 per cent from January to June 2022, while the iEdge S-Reit Index declined 6.1 per cent and the FTSE ST All-Share Reit Index retreated 5 per cent.

Gross revenue for H1 was up 14.7 per cent year on year to S$44.9 million from S$39.1 million, due primarily to higher a portfolio occupancy of 88.2 per cent – which in turn came largely on the back of a newly secured 10-year master lease for 30 and 32 Tuas Avenue 8. 

H1’s portfolio occupancy was also 4.8 percentage points higher than in the same period last year, and the highest level since Q3 2017. Excluding 1 Tuas Avenue 4, which is being activated for a major asset enhancement initiative (AEI), the overall occupancy for H1 would have been 91.3 per cent. 

Property expenses for the period slipped 33.1 per cent year on year to S$17.8 million from S$13.4 million, while net property income rose 5.2 per cent to S$27 million from S$25.7 million. 

Total amount available for distribution came in at S$17.1 million, some 9.6 per cent higher from the previous year’s S$15.6 million. 

Han noted that Sabana Reit’s proactive leasing efforts have also resulted in sustained rental reversions. 

Sabana Reit’s rental reversion for H1 came in at 9.1 per cent. The 17.4 per cent rental reversion for Q2 is the 9th positive quarterly reversion in the past 10 quarters, which Han said is “consistently among the highest within the Singapore industrial Reit sector”. He said the Reit has also delivered a return on investment of 5.8 per cent for H1, despite volatile market conditions. 

Han said Sabana Reit aims to achieve an upsized portfolio valuation of more than S$1 billion between 2025 and 2027. 

Sabana Reit has also strengthened its tenant mix, which now includes a higher proportion of tenants from more resilient sectors such as electronics and healthcare. The Reit has 151 tenants across 14 sectors, which it said ensures “cash flow resilience”. 

Sabana Reit’s manager also continues to proactively engage existing tenants ahead of lease expiries, and has successfully renewed 55 per cent of leases expiring in FY2022. 

As at end-June, aggregate leverage stood at 33.4 per cent, and weighted average all-in cost of borrowing was 3.35 per cent. The Reit’s weighted average debt maturity stands at 3.3 years, with no outstanding loans maturing in 2022 and 2023. 

Amid a rising interest rate environment, the Reit manager guided that every potential 20 basis point (bps) increase in interest rates could result in a 0.5 per cent reduction in DPU per annum, or a decline of S$0.0001.

Looking ahead, Han said the Reit has activated a major asset enhancement initiative (AEI) at its property at 1 Tuas Avenue 4, which will be converted into a high-specification logistics facility with a gross floor area of about 165,000 square feet (sq ft).

Targeted for completion by the second half of 2023, the AEI will be funded through internal resources, he said.

The Reit manager added that Sabana Reit remains on the lookout for accretive acquisitions despite the uncertain market conditions and rising interest rate environment.

“We’ve been on the lookout for opportunities; there are still opportunities in the market, both overseas and in Singapore,” Han said. “The market is volatile right now… (But) we’re sitting in a sweet spot and sometimes if you wait, you can get a good deal.”

Sabana Reit said that while Singapore’s economy continues to expand, the rising inflationary pressures led mainly by high energy prices, rising interest rates and the prevailing uncertainties in the external environment could dampen the industry’s outlook. 

The Reit said it continues to see expansionary demand in the Singapore industrial sector and remains cautiously optimistic in its mid-term outlook. 

“The manager will stay focused on proactive lease management to attract expansionary tenants, create value by enhancing asset potential and pursue yield-accretive acquisitions to expand portfolio growth, in order to deliver long-term sustainable value for all its unitholders,” added the Reit. 

Units of Sabana Reit closed on Wednesday at S$0.445, up 2.3 per cent or S$0.01, prior to the results announcement.