Sabana REIT's occupancy rises to 85%: Our Quick Take

Summary of Sabana Industrial REIT 3Q24 operational updates

Sabana Industrial REIT achieved overall occupancy of 84.9% as at end-September, well above 1H24’s 78.8%. 

It managed to grow occupancy in spite of the exit of the tenant at 30 & 32 Tuas Ave 8 (TA8), which was placed under creditors’ voluntary liquidation in June 2024. 

About 313,953 sq ft of new leases was signed in 3Q24 (about 8% of total lettable area) and 15,974 sq ft renewed at 9.7% higher rental. Rental reversion was stronger than 2Q’s 8.8%.

Backed by strong demand for warehouse and logistics properties, it back-filled 74% of the space at 33, 33A & 35 Penjuru Lane which was vacated by a defaulted master lessee. 

Sabana@1TA4, which obtained TOP in July 2024, is 64% occupied with one anchor tenant. New Tech Park also raised occupancy rate to 82%, from 80.8% at end June.

Only about 4.2% of the leases by gross rental income are expiring in 2024, and need to be renewed.

The security deposit collected from the ex-tenant at TA8 is sufficient to offset rental due, hence the financial impact on FY24 is expected to be minimal. The asset is undergoing reconfiguration initiative which is expected to be completed in early 2025. The REIT manager has begun pre-marketing of this asset.

Aggregate leverage at 37.0%, higher than 35.8% at end-June 2024. Interest coverage is little changed at 3.2x, compared with 3.3x in 1H24. Cost of debt was marginally higher at 4.31%. This has room to fall, as 77.2% of borrowings are on fixed rates.

About S$10.2 million has been incurred up to Sep 2024 on internalization expenses for the REIT. In 1H24, about 10% of the distributable income has been retained for these expenses. The manager cautioned that further retention may be required for 2H24 and FY25.

Beansprout's take on Sabana Industrial REIT's 3Q24 operational update

High tech industrial and logistics and warehouses make up 58% and 27% of its assets by gross rental income, respectively. It is well-poised to ride on the sustained demand for e-commerce and to build supply chain resilience. 

However, we expect rental uplift to ease, with impending new supply of 4.4 million sqm of industrial space, of which 56% will be ready in 2024/2025.

At the EGM on 18 Oct, shareholders voted for the candidates nominated by the requisitionists. Their appointment as directors of the internal REIT manager is subject to the approval of MAS. 

Based on 1H24 DPU of 1.34 cents, and book value of S$0.52, Sabana is trading at annualized yield of 7.0% and 0.7x price to book.

Related links:

• Sabana Industrial REIT share price and share price target

• Sabana Industrial REIT dividend forecast and dividend history

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