Sabana Reit H1 DPU down 16.8% to S$0.0134 after repossessions
Its manager cites the macroeconomic environment and uncertainties arising from the Reit’s internalisation process as challenges
SABANA Industrial Real Estate Investment Trust (Sabana Reit) posted a distribution per unit (DPU) of S$0.0134 for the first half of its fiscal year ended Jun 30, down 16.8 per cent from S$0.0161 in the corresponding year-ago period, its manager announced on Tuesday (Jul 23).
Gross revenue for H1 slipped 0.2 per cent on year to S$55.2 million from S$55.3 million, even as its overall portfolio occupancy slid to 78.8 per cent, from 93.9 per cent a year ago.
This was mainly due to the repossession of 33 and 35 Penjuru Lane in March, and 30 and 32 Tuas Avenue 8 in June, with the master tenant having been placed under creditors’ voluntary liquidation, the manager said.
Both properties are being re-marketed. Since Jun 30, about 42 per cent of the total lettable space in Penjuru Lane has been leased out, and a one-month booking fee has been received for about 27 per cent of the total lettable area.
Site viewings have also been conducted for prospective tenants of the Tuas Avenue locations.
The manager added that the court ruled in favour of Sabana Reit in the case of the Penjuru Lane repossession in respect of its claim – of an outstanding sum and about S$4 million in losses suffered – from Kleio One-Solution.
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But Kleio filed a notice of appeal, which is now before the High Court.
At a press briefing on Tuesday evening, Donald Han, chief executive officer of the manager, said that the buildings in Penjuru Lane will be leased out to multiple tenants, rather than a single one. Some capital expenditure will be incurred to partition the building for multiple tenants, but doing so will enable the Reit to charge higher rentals for the smaller units. In contrast, a single tenant would typically ask for a discount on rent.
Han said: “The rental proposition that we can get (for these buildings) on a multi-tenanted basis does make sense for the Reit. And given the fact that this property has been non-performing for so many months, it is important to mitigate this, and to turn it into a performing asset.”
Net property income was stable at S$27.2 million for the half year. The total income available for distribution came in at S$16.4 million, 8.2 per cent lower than the preceding year’s S$17.8 million. This was a result of higher finance costs from increased borrowings and higher borrowing costs, the manager said.
Han noted the challenging macro environment and uncertainties arising from the Reit’s internalisation process.
Sabana Reit has been locked in a tussle between unit holders and managers regarding its management model. In the first six months of 2024, the Reit incurred S$3.5 million in expenses – arising from the implementation of resolutions passed at an extraordinary general meeting on Aug 7, 2023 – to effect the internalisation of its management function.
But Han added: “The Reit’s proactive leasing strategy, asset rejuvenation and focus on tenant management and higher rentals have led to an improvement in portfolio valuation to S$914.5 million.”
This was a 3.3 per cent year-on-year increase.
On whether the Reit manager has plans to improve its falling share price, Han said the manager is focused on the Reit’s operations and “working very hard” to onboard new tenants in its properties.
He added that the Reit was not at its ideal occupancy rate, and that it would take time to bring in new tenants and maintain a respectable rental that can lift valuations.
Doing so would help to prop up the Reit’s net asset value – which has remained stable at S$0.52 per unit – and ensure that unit holders receive “a good buy” with the current share price, added Han.
The manager noted 42 new and renewed leases, and a tenant retention rate of 90.5 per cent for lease renewals in H1 2024. The Reit achieved a positive rental reversion of 16.8 per cent for the six-month period, though this was lower than the 20.1 per cent in the year-ago period.
Sabana Reit’s second major asset enhancement initiative at 1 Tuas Avenue 4, officially named Sabana@1TA4, received its Temporary Occupation Permit on Jul 9. Lease documentation is under way with a prospective tenant for the annex block, comprising about 64 per cent of its total lettable area.
Han told reporters at the briefing that the prospective tenants are more concerned about the properties’ rental rates than they are about the internalisation of the Reit manager. To this end, Han said the manager would offer competitive offerings and ensure that the building has an intrinsic value.
For example, the buildings at 33 and 35 Penjuru Lane are allowed to store chemical goods – a rare feature among warehouses – and Sabana@1TA4 has the advantage of being near Tuas Crescent MRT station.
As at Jun 30, the Reit’s aggregate leverage was 35.8 per cent, with a weighted average debt maturity at 3.4 years. Its interest coverage ratio, which indicates a company’s ability to repay its interest, was 3.3 times with a debt headroom of S$136.3 million.
Asked whether it would have been cheaper to renew its loan rather issue sustainability-linked bonds to refinance existing loans, chief financial officer Lim Wei Huang said the Reit is finding it challenging to obtain hedging arrangements with banks. “I wouldn’t say conventional financing is not available at all, but the operational challenges and hurdles we’ve been facing with our existing lender are there. That’s the reason it’s not viable at the current juncture for us to explore that option,” he said.
Units of Sabana Reit closed S$0.005 or 1.5 per cent higher at S$0.34 on Tuesday.
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