Sabana REIT - Higher Revenue Overshadowed By Higher Costs

Sabana REIT - DBS Research 2023-01-31: Higher Revenue Overshadowed By Higher Costs

Sabana REIT - Higher Revenue Overshadowed By Higher Costs

SABANA INDUSTRIAL REIT (SGX:M1GU)

Sabana REIT (SGX:M1GU)'s FY22 revenue increased by ~16% y-o-y, mainly driven by higher contributions from the high-tech industrial and general industrial segments. Higher contributions are seen from New Tech Park, 30 & 32 Tuas Avenue 8, 508 Chai Chee Lane, 23 Serangoon North Avenue 5, and 10 Changi South Street 2.
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Despite the strong growth in revenue, Sabana REIT's DPU has remained at 3.05 cents. Weaker DPU as a result of higher operating expenses (i.e., utility expenses) and higher financing costs.
Portfolio valuations increased 2.3% to S$885.7m.
Cap rates remained relatively stable, with the valuation uplift coming from organic portfolio growth. Signing rents were higher and the 10-year master lease was signed at 30/32 Tuas Avenue 8 (in 2Q22).
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More than 27% of portfolio leases due to expire in FY23. ~51% of the 941,704sqft, of the leases expiring in FY23, are either renewed or under negotiations already.
AEI to convert the property into a high-spec logistics facility with a GFA of ~165,000sqft has been approved by JTC. Sabana REIT will proceed with the submissions for other approvals. Main contractor to be appointed by 1Q23.
Sabana REIT's gearing has improved to a very healthy 32.4%. This is mainly due to the increase in portfolio valuations. Sabana REIT is left with healthy debt headroom of more than S$156m.
Although Sabana REIT has ~83% of its borrowings hedged to fixed rates, financing costs have crept up to 3.86%. ~9bps uptick seen in all-in financing costs q-o-q. Compared to a year ago, borrowing costs have increased 72bps. All-in financing costs are expected to remain relatively contained, as there are no loans maturing until 4Q24.
Every 50bps increase in interest rates may result in a ~S$0.25m decrease in Sabana REIT's distributable income, or a ~0.8% (~0.02 cents) reduction in DPU.