Is Sabana Industrial REIT A Good Buy In 2025? [Fundamental Analysis]

In this article, we'll conduct a fundamental analysis and review of Sabana Industrial REIT and its suitability to achieve the following investment objective: To deliver a stable dividend yield of 5% to 6% per year while having high capital preservation ability.

Information Is Accurate Up To Jan 2025

Business Description

Sabana Industrial REIT is an industrial REIT that was listed in 2010 and owns 18 industrial properties in Singapore.

What I Like About Sabana:

• Relatively stable operational performances and stable distribution behaviour in the last 5 years
  

• Healthy financial profile with acceptable gearing ratio, stable interest cover ratio and average cost of debt 
  

• Little to no financial engineering which makes the REIT very transparent to analyses and easy to calculate the intrinsic value

What I Do Not Like About Sabana:

• Like all local industrial REITs, Sabana Industrial REIT have a “short” average land lease expiry which would result in a higher lease decay impact on the net asset value of the portfolio.
  

• On August 2023, Sabana REIT holders approved the removal of the manager with 57.5% voting in favour of internalization. The potential net impact this move may have on future performances is largely unknown.

Updates From Recent Performance (FY 2024)

General Comments:

• The internalization process thus far has been smooth but it is still early to attribute the improvement to the internalization process and not the positive macro-economic conditions.
  

• DPU increased by 3.6% at the back of stronger top and bottom-line performances driven by high rental reversions (20.6%)
  

• Overall portfolio occupancy rate slipped to 85% from 91.2%. This is mainly due to the repossessions of 33, 33A & 35 Penjuru Lane on 8 March 2024 and 30 & 32 Tuas Avenue 8 on 14 June 2024.

Positive Headwinds:

• The occupancy rate is still not fully occupied and there's still more room to improve which may contribute to higher DPU in the future as they fill up the space.
  

• The cost of debt should have stabilized with negligible levels of refinancing in FY2025. By 2026, interest rates would have started to taper, thereby resulting in a higher DPU, all else being equal.  

Negative Headwinds:

• REIT’s performance is expected to be impacted by further costs incurred in connection with the internalization process.
  

• There will be a surge in pipeline supply in 2025, with an almost 40% increase from the 4-year average historical completion of industry space. This is set to increase overall supply thereby putting pressure on rent reversions and occupancy rates.
  

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Disclaimer:

This article is meant to be the opinion of the author

This article is for information purposes only

This article should not be seen as financial advice

This advertisement has not been reviewed by the Monetary Authority of Singapore