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Investor CentralSabana Shariah Compliant REIT - MANAGEMENT REPLY: When will we get clarity on expiring master leases?
31/1/2013 – Sabana Shari’ah Compliant REIT is positive about the performance for 2013, given that the majority of the existing master leases will not expire until the end of this year and beyond.
It will also not be impacted by the recently introduced Seller’s Stamp Duty (SSD), even though the SSD applies for industrial properties and land bought on or after January 12, 2013.
This is because it holds its properties for investment purposes on a long term basis.
The whole idea of introducing the new SSD is to weed out speculators and moderate industrial property prices, particularly strata-title units.
The company just announced earnings for Q4 FY12:
Gross revenue: +24.6% to S$21.5 mln
Net property income (NPI): +22.4% to S$20.3 mln
Distributable income: +11.2% to S$15.4 mln
DPU: 2.41 cents vs 2.17 cents
Cash flow from operations: S$14.1 mln vs S$24.1 mln
The increase in revenue and NPI stemmed from the six properties it bought between November 2011 and October 2012.
The property portfolio was revalued at S$1.1 bln, about S$25.3 mln more than last year.
99% of their available space is leased.
UOB Kay Hian Research has a BUY call on the stock with a target price of S$1.30 while Phillip Capital has maintained its NEUTRAL rating with a target price of S$1.19.
Investor Central. Asian insights for global investors. We ask the tough questions of Asian companies which global investors need answers to.
1. When will it paint a clear picture on the expiring master leases this year?
Sabana’s five properties, contributing to 44.7% of gross revenue, will
see master leases expire by end-2013.
The five properties are 151 Lorong Chuan, 200 Pandan Loop, 8 Commonwealth Lane, 123 Genting Lane and 3 Kallang Way 2A.
Of the five properties, management has apparently made some progress on the top two contributing properties, namely, 151 Lorong Chuan and 8 Commonwealth Lane.
The master lessee of 151 Lorong Chuan had brought new tenants to the building, improving the underlying occupancy from 82% to 96%.
Phillip Capital Research says it rented out new space between S$3.50 and S$4.00 per sq ft.
While the master lessee of 8 Commonwealth Lane is prepared to explore renewing of contract, the management doesn't want to speculate on this until the renewal contract is signed.
The analyst says it is still early days to conclude because there still exists renewal and replacement risks.
This goes especially for 8 Commonwealth Lane and 3 Kallang Way 2A, which are both on JTC land and therefore 50% of gross floor area (GFA) must be occupied by approved anchor tenants.
Currently, both properties are single-tenanted and the JTC ruling may raise the bar to find an approved anchor tenant, should the existing master lessees choose not to renew.
Management reply: According to our lease agreements with the master tenants, they are required to give us an indication on whether they will renew the leases or not six months before their leases expire.
2. Will it go slow on acquisitions?
Sabana has 37.6 cents worth of debt for every dollar's worth of assets, and average all-in financing cost fell to 4.3% pa from 4.4% pa in 2011.
Sabana says it's still looking to buy properties which throw off a good amount of rental income, the pace of acquisitions may be slower, following the Q3 FY12 and late 2011 acquisitions.
Management reply: We will continue to make acquisitions selectively i.e. we will continue to acquire properties which fit our investment criteria.
We thank management for its responses.
Sources & further information
Statutory disclosure
Press release
Presentation materials
Phillip Capital Research Report
S&P Research Report
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