Saturday, July 28, 2012

Sabana REIT

Sabana REIT is a Singapore based and the world’s largest Shariah compliant Real Estate Investment Trust (REIT). Islamic Finance and investment is an area which is growing at an impressive rate in Asian region. According to a survey from Deutsche Bank, it is predicted that Islamic banking assets would grow by 90% by 2016.Sabana REIT being an Islamic compliant gets funding from large investor base which look to invest money in a company which is Shariah compliant.

Sabana REIT was established primarily to invest in income producing real estate assets mainly in the industrial sector, with outmost care that those investments are Shariah compliant businesses only. Sabana REIT was listed on Singapore Stock Exchange in November 2010 and today with market capitalization of almost S$ 664 million it has portfolio of almost 20 properties of high quality in industrial space whose present value is worth S$ 1.0 billion. This REIT is managed by Sabana Real Estate management Pte LTD.

Due to fears of Greece exiting Euro Zone, Confidence of lot of investors has been dented in equity space but during tough times of sharp volatility and uncertainty lot of Singapore REIT companies have outperformed and given excellent returns to investors. Moreover, the long term outlook for these S-REITs still remains healthy. Efficient portfolio management and capital management has been the hallmark for this good performance.

As liquidity is still good, lower interest rates and tourists inflow in Singapore are some of the key factors which would help the company in acquiring new REITs. It would also keep the cost of acquisition low. Hence the outlook for future looks positive with capital appreciating and positive cash flows from existing REITs.

Sabana REIT is one of the most aggressive bets in the space, is considered to be well placed to take advantage of the current economic situation. In the first year of operation after listing in Dec2010, this REIT has performed reasonably well with gross revenue of S$ 76.9 million (2% more than forecast) and DPU of 8.67 cents (0.9% more than forecast). Also in 1Q12 the QoQ% revenue growth is almost 8.8% and DPU growth is 4.1%. Both are almost highest among other peers in the space.


Good earning, professional portfolio management, improving DPU, efficient capital management and good dividend yield are some of the key factors which make the Singapore based REITs (S-REIT) a good investment option. Sabana REIT is the only REIT giving annualized yield of more than 9%. Hence it is definitely a good investment option for customers who expect higher return on their investment. 100% occupancy ratio for its properties makes Sabana REIT well placed compared to its competitors in short and medium term.

Though Sabana REIT has performed better than expectations but to continue this kind of robust performance it would need to take some positive and extra steps which the management is expected to take. Positive actions which the management is expected to take are renewal of the rental leases expiring in 2013, signing more long term leases similar to 1 Tuas Avenue 4 lease which was signed for 15 years. Also one or more good acquisitions to be done to take advantage of good liquidity and low interest rates. These actions will definitely improve the distribution per unit (DPU) for this REIT.


Sabana REIT despite being a new REIT has performed reasonably well among its peers in industrial sector S-REITs. For the last two immediate quarters, the performance has improved compared t last year. Supported by positive outlook for REITs in Singapore, this stock is definitely a BUY as rated by Phillip Capital.

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