Sabana REIT's 1H24 DPU fall by 16.8% year-on-year - Our Quick Take

Summary of Sabana Industrial REIT's 1H24 results

Sabana Industrial REIT reported its results and dividends for the first half of 2024 (1H24).

• Sabana Industrial REIT 1H24 distribution per unit (DPU) fell 16.8% year-on-year to 1.34 cents, compared to 1.61 cents in 1H23. This translates to an annualized yield of 7.9%.
• However, its DPU was higher compared to 1.15 cents in 2H23. 

Revenue and net property income were flat. Distribution was dragged down by higher interest cost, internalization cost and working capital (S$1.6m).

Finance expenses rose 37% to S$8.8m as cost of debt rose from 3.9% in FY23 to 4.3% in 1H24. 

Gearing rose to 35.8%, from 34.3% at end-2023. Interest cover is 3.3 times, from 3.5 times in FY23. It has no refinancing needs till Mar 2026.

Rental reversion was 16.8% in 1H24 (1H23: 20.1%). Portfolio occupancy fell to 78.8%, with repossession of 33 & 35 Penjuru Lane in Mar 2024, and 30 & 32 Tuas Ave 8 on 14 Jun 2024 after the tenant was placed on creditors’ voluntary liquidation. 

About 42% of space at Penjuru has been leased out and one-month booking fee received for about 27% of total lettable area.  The deposit for 30 & 32 Tuas Ave 8 is more than sufficient to cover accrued rental. There are site viewings conducted by prospective tenants. 

The outlook is mixed. Management cautioned that it might need to offer rent-free period to backfill the space. But new leases could command higher rents as these are now multi-tenanted. Previous lease was signed with single tenant and at pandemic-low rents. Sabana@1TA4 has obtained TOP on 9 July 2024 after AEI, with 64% of space under lease documentation.

Beansprout's take on Sabana Industrial REIT's 1H24 results

The earnings are likely to be seen as positive by investors, as DPU was higher than that in 2H23. 

Despite the lower occupancy, portfolio valuation has improved to S$914.5m, from S$903.9m at end-2023.  This suggests firm rental outlook for its assets. 

The backfilling of about 70% of space at Penjuru Lane and active enquiries at Tuas Ave 8 could shorten the downtime in revenue generation, in our view.

Sabana would need to set aside cash for working capital and internalization costs as shareholders had voted against dividend reinvestment plan and further equity raising. This may continue to weigh on its distributions.

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To learn more about our outlook on Singapore REITs, read our detailed report on "Singapore REITs - Distributions may remain under pressure"

Related links:

• Sabana Industrial REIT share price and share price target
• Sabana Industrial REIT dividend forecast and dividend history

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