Sabana Reit's H1 DPU trebles to 1.48 S cents; to remove Shari'ah compliance requirement

THE manager of Sabana Shari'ah Compliant Industrial Real Estate Investment Trust (Sabana Reit) has announced a distribution per unit (DPU) of 1.48 Singapore cents for the half year ended June 30, 2021, more than three times the DPU of 0.47 Singapore cents a year ago.

The DPU increase was mainly attributable to the manager's retention of 55 per cent of Sabana Reit's distributable income in H1 last year to conserve the group's capital amid the Covid-19 outbreak. If the income had not been retained, Sabana Reit's DPU would have been 1.05 cents in H1 2020.

Gross revenue rose 14.1 per cent to S$39.1 million, driven by contributions from higher occupancies at New Tech Park, 23 Serangoon North Avenue 5, and 10 Changi South Street 2.

The manager said in a regulatory filing on Thursday morning: "Our proactive leasing management, together with the completion of our asset rejuvenations for select properties, contributed to the improved occupancy. We were able to attract more tenants from expansionary, resilient sectors."

Overall occupancy levels were 83.4 per cent as at June 30, improving 6.1 percentage points from 77.3 per cent a year ago. Excluding 1 Tuas Avenue 4, which is held for divestment, occupancy would have been 86.4 per cent.

Net property income was 23.2 per cent higher at S$25.7 million for the six-month period, from S$20.9 million.

Distributable income increased 41.2 per cent to S$15.6 million, from S$11.1 million a year ago.

Sabana's manager said it is resuming its distribution reinvestment plan (DRP) to allow unit holders to elect to receive their distribution in the form of units or cash, or a combination of both. The DRP issue price will be announced on July 30.

The manager said this offers an opportunity for unit holders to increase their holdings and participate in Sabana Reit's growth at a discount to the weighted average traded price per unit, without brokerage or other transaction costs and stamp duty.

To help move the Reit to the next phase of growth, the manager on Thursday also announced it is removing the Shari'ah compliance requirement of Sabana Reit and the requirement for the business to be managed in compliance with Shari'ah investment principles and procedures.

This will enable Sabana Reit to invest in real estate assets that do not comply with Shari'ah principles. Currently, the manager has to ensure that the total rental income from lessees, tenants and sub-tenants engaging in activities prohibited under Shari'ah guidelines do not exceed 5 per cent of Sabana Reit's gross revenue per annum.

In a media call on Thursday, chief executive of the manager Donald Han stressed that the removal of the Shari'ah compliant requirement was "not an easy decision" for the group to make.

"It wasn't a decision made in three months," he said, adding that the manager has spent close to three years talking to unit holders and deliberating on the move.

The move comes as the percentage of Sabana Reit's unit holdings by Shari'ah investors has fallen significantly to 2 per cent as at March 31, 2021, from 12.3 per cent as at end-2011.

Even after the removal of the Shari'ah compliant requirement, Mr Han said the manager "will continue to explore options on how to be Shari'ah-friendly".

The manager said the Reit's revised investment mandate will be to principally invest in income-producing real estate used for industrial purposes in Asia, as well as real estate-related assets.

"For the avoidance of doubt, the only amendment to Sabana Reit's current investment mandate is the removal of the requirement for the investments of Sabana Reit to be in compliance with Shari'ah investment principles," the manager said in a bourse filing.

The change, which is subject to the amendment to Sabana Reit's investment mandate, its change of name, and the termination of the Shari'ah consultancy agreement, is intended to take effect around Oct 21.

Following this, the trust will be renamed Sabana Industrial Real Estate Investment Trust.

The manager said the change will give Sabana Reit access to more funding sources. "This can provide further resilience for its balance sheet and financial flexibility to better position Sabana Reit to drive value-accretive acquisitions and organic growth for unit holders," said its manager.

It added that the move could also provide greater flexibility in capturing growth opportunities, through exposure to a larger pool of diversified and potentially higher-rental paying tenants for Sabana Reit's properties.

Havard Chi, head of research at activist fund Quarz Capital Management, said the move could "probably" be positive for unit holders. However, he accused the Sabana manager of flip-flopping on its stance. "It is increasingly clear that Sabana Reit manager's proposed merger with ESR-Reit ... (was) value-destructive to unit holders," he told The Business Times. "Full credit for the positive outcome goes to all unit holders who united to vote down the bad merger."

Peter Kennan, chief investment officer of Black Crane Capital, declined comment.

Quarz and Black Crane together own a more than 10 per cent of Sabana Reit.

Meanwhile, the manager on Thursday also disclosed that it has entered into a facility agreement with UOB for up to S$225 million on an unsecured basis.

The loans will be used to refinance the majority of Sabana Reit's existing secured indebtedness, as well as for general corporate and working capital needs.

Units of Sabana Reit closed up S$0.01 or 2.3 percent at S$0.44 on Thursday.