Analysis of Sabana REIT - Still in the process of stabilising...

Current Price on 17th Oct 2015 = $0.785

• Yield = 9.02%  
• Price-to-book Ratio = 0.744
• Assets per unit = $1.748
• Debt per unit = $0.693 (including current liabilities)
• Gearing = 39.7%

Sabana REIT just published their results which in my opinion, gave some assurance to the stability of their portfolio, and yield. However, more info will be released and made known in the 4Q of the year which is critical for Sabana REIT.

Yield is currently at 9.02% (DPU drop by a little) which to me is excellent. Their price-to-book ratio is at 0.744 which means we are buying properties at about 25% discount. Well, some of the properties remain empty (about 10%) so that contributes to the discount. Gearing is at a safe 39.7%.

In the report, they are still negotiating the renewal of 8 of the 10 master lease while the other two will become multi-tenanted. Multi-tenanted to us means that occupancy will drop by about 20% but that is only for two properties. The other eight, I am not sure whether they will be successful in negotiating as if they fail, the impact is to one-third of the total portfolio.

I have made an estimation that in the event all become multi-tenanted, yield should drop by 10% to 15%, which gives us a yield of 7.67% to 8.12%. And this is the trading yield for other industrial REIT. Ascendas REIT is trading at 6.46%, Cambridge Industrial Trust is trading at 7.84%. Soilbuild REIT is trading at about 7.83%. So with that, one of the strategy is to buy Sabana REIT in the hope that they succeed. If they succeed and the market recognize it, yield should be compressed to about 8%. If it fails, I don't think price will continue to drop.

I am holding on to a lot from IPO (so long ago). And I am considering whether to execute this strategy of mine. It is going to be long and the full effects should only come in half a year's time. Still thinking.