CACHE LOGISTICS TRUST
K2LU.SI
Sabana Shari'ah Compliant REIT - 4Q15: In Line With Expectations
Results in line.
- Sabana reported 4Q15 DPU of 1.50 S cents, down 15.7% yoy.
- Gross revenue and NPI contracted 2.9% and 10.3% respectively in the quarter, arising from a combination of negative rental reversions, increased vacancies and multi-tenant building conversions.
- The results were largely in line, coming in at 97.3% of our estimate.
- Maintain BUY with a lower target price of S$0.89 (previously S$0.92), based on DDM (required rate of return: 8.1%, terminal growth: 1.3%).
- We trim DPU estimates by 3% by lowering rentals to factor in ongoing domestic headwinds.
Operational highlights.
- Overall occupancy rate shed 4ppt qoq to 87.7% (3Q15: 91.7%) despite ongoing AEI and reconfiguration works.
- Gearing and overall financing costs remained stable at 41.7% and 4.2% respectively. About 24.7% of borrowings are due in 2016. 33.6% of leases by NLA are due for expiry in 2016.
Renewal of expiring master lease provides some breather.
- Of the 11 master leases expiring in 4Q15, the REIT manager managed to renew the leases of six assets, converted three into multi-tenanted buildings and divested 3 Kallang Way.
- Factoring in the related costs and expenses (inclusive of divestment fee of S$83,000), we reckon the divestment gains to be paid out to unitholders could likely be minimal.
- Options for 218 Pandan Loop are still being evaluated. Three of the sponsor-linked assets (12.3% by portfolio value) have been renewed for a year, thus the jury could still be out on these leases that are due in a year’s time.
Recycling of under-performing assets and acquisition-led growth still underpin management’s strategy.
- Apart from the company’s drive to renew master leases, management has capital recycling in its sights as the divestment of under-performing assets and pursuit of yield-accretive acquisitions remain at the core of its plans, as mentioned above.
- Management re-iterated its reluctance to stretch gearing levels, preferring to remain at more prudent levels approaching 40%. The latest divestment of 200 Pandan Loop yielded net gains of S$2.8m.
- We note that though the divestment took place at 5.6% premium to the latest valuation, the asset took a 18% loss compared to the previous valuation exercise on 31 Dec 14.
Portfolio loses some lustre.
- We observed that Sabana’s portfolio value took a hit in the latest valuation exercise as of 30 Dec 15. 15 Jalan Kilang Barat, 23 Serangoon North, 33& 35 Penjuru, 26 Loyang and 34 Penjuru recorded revaluation losses of 21-38%.
Future endeavours to smoothen lease expiry profile.
- Management continued to highlight diligence in monitoring expiring leases.
- Going forward, the company will prevent lease expiry from exceeding 30-35% at any given year.
Possible outward expansion on gloomy domestic outlook.
- Management continues to express reservations on Singapore’s industrial outlook, and highlights the possibility of venturing abroad.
- Australia was flagged as a market Sabana could be interested in, pending careful evaluation of cap rates.
- However, warehouse acquisitions in the domestic market have not been ruled out, as management has stated cap rates at above 7% would look attractive to them.
Vikrant Pandey
UOB Kay Hian
|
Derek Chang
UOB Kay Hian
|
http://research.uobkayhian.com/
2016-01-26
UOB Kay Hian
SGX Stock
Analyst Report
0.89
Down
0.92
