facebookA Look at Sabana Shariah Compliant REIT's (SGX: M1GU) 10% Dividend Yield and More
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Sabana REIT analysis

A Look at Sabana Shariah Compliant REIT's (SGX: M1GU) 10% Dividend Yield and More

profileSudhan P

Sabana Shariah Compliant REIT (SGX: M1GU) (Sabana REIT for short) has a unit price of S$0.28 at the time of writing. 

At that price, Sabana REIT is valued at a price-to-book (PB) ratio of 0.5 and has a distribution yield (or technically known as distribution yield for REITs) of 10.4%. 

The REIT looks cheap based on its latest valuation.

But is Sabana REIT cheap for a reason? 

Let’s find out using my 10-step guide to pick the best Singapore REITs.

As a summary, here are the 10 steps I use to pick the best Singapore REITs:

  1. Growth in Gross Revenue and Net Property Income
  2. Growth in Distribution Per Unit
  3. Property Yield of Between 5% and 9%
  4. Gearing Ratio of Below 40%
  5. Interest Coverage Ratio of Above 5x
  6. Healthy Portfolio Occupancy Rate
  7. Positive Rental Reversions
  8. Presence of Growth Prospects
  9. Acceptable Price-to-Book Ratio
  10. Distribution Yield of Above 5%

Business Background

Sabana REIT, which was listed in 2010, is a REIT which is in line with Shari’ah investment principles. 

As of 31 December 2019, Sabana REIT has a diversified portfolio of 18 properties in Singapore.

Those properties belong to the high-tech industrial, warehouse and logistics, chemical warehouse and logistics, as well as general industrial sectors. 

Source: Sabana REIT investor presentation

1. Gross Revenue and Net Property Income (NPI) Check

Check for: Increasing gross revenue and NPI

Firstly, let’s investigate Sabana REIT’s gross revenue and NPI from 2015 to 2019 (the REIT has a 31 December year-end). 

 FY2015FY2016FY2017FY2018FY2019Compound annual growth rate (CAGR)
Gross revenue
(S$' million)
100.8291.8185.2080.9676.34-6.7%
Net property income
(S$' million)
71.6056.9453.3852.7951.61-7.9%

It can be seen that Sabana REIT’s gross revenue and NPI have not been performing well over the past five years, and that’s concerning. 

Verdict: Fail

2. Distribution Per Unit (DPU) Check

Check for: Increasing DPU

Together with the fall in gross revenue and NPI, Sabana REIT’s DPU has tumbled over the last five years as well.

 FY2015FY2016FY2017FY2018FY2019CAGR
Distribution per unit (Singapore cents)
6.854.643.313.182.92-7.9%

Verdict: Fail

3. Property Yield Check 

Check for: Property yield of between 5% and 9%

Next, let’s look at Sabana REIT’s property yield. 

For 2019, the REIT had an NPI of S$51.61 million while its valuation of investment properties stood at S$964.13 million. This translates to a property yield of 5.4%, which is to my liking. 

Verdict: Pass

4. Gearing Ratio Check

Check for: Gearing ratio below 40%

As of 31 December 2019, Sabana REIT had a gearing ratio (also known as “aggregate leverage”) of 31.1%.

This is a resounding pass as the gearing’s below my limit of 40% and the regulatory ceiling of 45%.

Source: Sabana REIT investor presentation

Verdict: Pass

5. Interest Coverage Ratio Check

Check for: Interest coverage ratio above 5 times

For 2019, Sabana REIT’s interest coverage ratio was low at 4.1x, given its NPI of S$51.6 million and finance costs of S$12.7 million. 

Verdict: Fail

6. Portfolio Occupancy Rate Check

Check for: Healthy portfolio occupancy rate

As of 31 December 2019, the portfolio occupancy for the portfolio was 75.4%.  

Source: Sabana REIT investor presentation

The latest occupancy fell from 80.6% at the end of September 2019 mainly due to the expiry of 3A Joo Koon Circle’s master lease during the fourth quarter.

The REIT’s manager has a goal of ramping up occupancy levels nearer to 90%. But for now, the falling occupancy rate is a no-go.

Verdict: Fail

7. Rental Reversion Check

Check for: Positive rental reversions

For 2019, Sabana REIT had a positive rental reversion of 1.2 %. 

Source: Sabana REIT investor presentation

It’s nice to see rental reversion in positive territory even though industrial rents were challenged in 2019.  

Verdict: Pass

8. Growth Prospects Check

Sabana REIT’s historical financial performance has been far from stellar as seen earlier.

To arrest that situation, the REIT has embarked on a new strategy:

Source: Sabana REIT 2018 annual report

The plan was put together after the REIT’s manager brought in Donald Han as its new chief executive in January 2018.

The first phase of the refreshed strategy, as it’s called, was to sell properties that didn’t quite fit Sabana REIT’s portfolio, such as 6 Woodlands Loop and 9 Tai Seng Drive.

Phase two of the REIT’s strategy is to undertake asset enhancement initiatives (AEIs). One of the properties currently undergoing AEI is New Tech Park at Lorong Chuan. 

Source: Sabana REIT investor presentation

In an interview with the Singapore Exchange, Han was optimistic about the New Tech Park AEI:

“The AEI is a game changer for New Tech Park’s tenants and the residential neighbourhood, which is in line with the latest Draft 2019 Master Plan, where URA hopes to revitalise older buildings, rejuvenate neighbourhoods and provide decentralised employment to residents.”

The REIT’s manager is also undertaking or has undertaken refurbishment works at 10 Changi South Street 2 and 21 Joo Koon Crescent.

Beyond the first two phases, Sabana REIT is considering yield-accretive acquisitions in Singapore and also beyond our shores.

The REIT’s relatively low gearing ratio would allow it to gear up easily for such acquisitions.

Overall, Sabana REIT’s growth plans look promising.

Verdict: Pass

9. Price-to-Book Ratio Check

Check for: Acceptable price-to-book ratio 

At Sabana REIT’s current unit price of S$0.28, it has a PB ratio of 0.49x, which is low compared to its five-year average of 0.74x. 

Verdict: Pass

10. Distribution Yield Check

Check for: Distribution yield to be above 5% 

Sabana REIT passes this criterion as well with a distribution yield of 10.4% at its unit price of S$0.28. 

Verdict: Pass

The Final Verdict

Sabana REIT has a final score of 6/10.

Sabana REIT’s gross revenue, NPI, and DPU have been falling from 2015 to 2019.

However, if the REIT plays its cards well, it could turnaround its business, especially with its low gearing ratio to take advantage of any opportunities on the acquisition-front.

I’ll be monitoring Sabana REIT going forward to see if it can deliver on its plans.

With that, I’m placing Sabana REIT on my watchlist. 

What Are Your Thoughts on Sabana Shariah Compliant REIT?

Come discuss them and more in our Seedly Community under a page specifically dedicated to Sabana Shariah Compliant REIT (SGX: M1GU).

Disclaimer: The information provided by Seedly serves as an educational piece and is not intended to be personalised investment advice. ​Readers should always do their own due diligence and consider their financial goals before investing in any stock. 

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About Sudhan P
It isn't fair competition when only one company in the world makes Monopoly. But I love investing in monopolies. Before joining the Seedly hood, I had the chance to co-author a Singapore-themed investment book – "Invest Lah! The Average Joe's Guide To Investing" – and work at The Motley Fool Singapore as an analyst.
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