Sabana REIT: 1Q 2012 DPU 2.26c.

The REIT's yield accretive purchases of five properties last year has helped to push DPU to 2.26c for 1Q 2012. Annualised, this would give us a DPU of 9.04c. Based on the REIT's last closing price of 97.5 per unit, we are still looking at a distribution yield of more than 9%. 9.27% to be more exact.

With a NAV/unit of $1.04, the REIT is still trading at a discount to NAV even though its unit price has risen significantly in the last few months.

Gearing: 33.9%.

Interest cover ratio: 5.5x.

Occupancy: 96% to 98.4%.

WALE: 2.6 years

Weighted average remaining land lease: 39.9 years.

The REIT will go XD on 25 April and income will be distributed on 29 May.

I would like to see the managers working to increase occupancy and negotiate lease renewals with positive rental reversions this year. If successfully executed, we could see DPU improving marginally in the next few quarters.

For anyone interested in investing in an industrial S-REIT for regular income, Sabana REIT would appear to be an attractive proposition even at current prices.

Related post:
Sabana REIT: 4Q 2011 results.

See presentation slides: here.

First REIT: 1Q 2012 DPU 1.93c and a higher fair value?

First REIT has declared a DPU of 1.93c. The unit price of First REIT has been rising steadily. It is clear that Mr. Market is willing to pay a gradually higher price for the REIT's units which leads me to wonder if we could see First REIT's distribution yield compressing to 6% which would bring it closer to PLife REIT's distribution yield which is currently under 6%. This could see the REIT's unit price going to $1.06.

When calculating distribution yield, I would rather use a DPU of 1.6c per quarter instead of 1.93c. Why? When we look at the numbers, we would see that the net property income (NPI) has improved 6% while distributable income has improved some 22%. This is because First REIT is still paying out its gains from divesting its Adam Road property. If we remove this component, the DPU should hover at 1.6c or so.

In fact, year on year, if we look at the distributions from operation, it has actually declined a marginal 1.4%. Total comprehensive income, even after the removal of the one off gain from the divestment of its Adam Road property, saw a reduction of some 7%; this is due to higher income tax expense. So, one would not be wrong to wonder if its estimated post rights DPU of about 1.6c per quarter in future could be maintained, everything else remaining equal.

When the REIT acquired its first property in South Korea, freehold Sarang Hospital, many were optimistic. However, the acquistion increased the REIT's gross revenue by 6.3% while increasing its operating expenses by 51.1%. Expectations for a higher DPU due to the acquisition has yet to be met.

Some might say that the underperformance is to be expected since being the REIT's only facility in South Korea, there is no economies of scale per se. In fact, I wondered about this when the acquisition was announced last year.

See the relevant blog post: here (First REIT: Yield accretive purchase in South Korea).

Although S-REITs distribute a minimum of 90% of their income to unitholders unlike companies which pay dividends from their earnings, it might still be of interest to some to note that First REIT's earnings per unit has declined year on year from 2.13c to 1.51c. This takes into consideration its rights issue, of course.

With its NAV per unit at 79.99c, the REIT is now trading at a 15% premium to NAV.

What remains largely in the REIT's favour is its very low gearing level and if it were to gear up to 40% to make yield accretive purchases in locations where it could benefit from economies of scale, we could see its DPU bump up by more than 20%.

At current prices, I would hold and not add to my long position.

See financial statement: here.

Related post:
First REIT: To sell or not to sell?