Sabana Shari’ah Compliant Industrial REIT is one industrial REIT that is slowly making us see the problem with Master Leases.
This morning, there was an analyst report on Sabana by UOB Kay Hian. One paragraph at the start indicates the possible reasons why the stock have been underwhelming:
Well there was an announcement this evening. You can read the announcement here.
3 of the properties, which are leased to their sponsor Vibrant Group, will be renewed for a total consideration of $10.5 mil. These 3 master lease will be renewed for 1 year.
Below shows the value of the gross revenue for Sabana’s various properties during IPO:
If we tally up the revenue from the 3 properties, they come up to S12.5 mil.
This means the rent actually fall by 16% since that time.
What would renewing only 1 year from their sponsor indicate? That the sponsor actually wanted to move away? Usual lease terms for industrial properties in Singapore is 3 years based on historical.
This looks like an indication that the sponsors are unwilling to stay on and rent have to be lowered to attract them.
The operating conditions are challenging, and this could be indicative of the tough conditions for the industrial property investors, the REITs that are heavy in multi purpose or warehouse properties.
This is not the first time a master lease have expired that is close to not being renewed. Sabana suffered from a share price drop when one main master lease needs to be turned into a multi tenanted building.
At current share price, the indicative dividend yield of Sabana stands at 9.7% on my Dividend Stock Tracker, which does look appealing.
However, I learn a long the way growth of dividends, share price and rentals, not to mention good risk management depends a lot on management. You can observe this from past performance as well as the acquisitions done at which time, and on hindsight, how have those acquisitions and divestment performed.
From what I see, I rate the management of Aims Amp, Cambridge to be a tad higher than Sabana.
If you look to purchase, you must have a good premium over average industrial REITs (which you can see on the Dividend Stock Tracker) and also project a cut in rental for those that is coming up for renewal.