Sabana REIT: 2Q 2012 DPU 2.27c.

When people asked me whether they should invest in AIMS AMP Capital Industrial REIT or Sabana REIT recently, I asked them what are they after? If they are after a higher yield in the immediate future, Sabana REIT is the obvious choice.

Sabana REIT has declared a DPU of 2.27c, just 0.01c higher than in the last quarter. Annualised, this gives us 9.08c. Buying units of the REIT at $1.00 a piece would give us a distribution yield of 9.08%. Sabana REIT is probably the only one in the S-REIT universe now that is offering a distribution yield in excess of 9%.

Gearing: 34.1%

NAV/unit: $1.04

Interest cover ratio: 5.6x

Occupancy: 98.4% to 100%.
(Total occupancy rate: 99.9%)

Remaining land leases (average): 39.7 years.

The REIT's management should be working on leases expiring in 2013 soon, if they have not started already. Given that 47.4% (down from 49.4% in January 2012) of leases expire in 2013, this is a top priority, in my opinion. Hopefully, we would then see positive rental reversions which would, in turn, improve DPUs.

They have signed a new 10+5 year master lease for 1 Tuas Avenue 4 which would now expire on 31 March 2022. I would like to see more of such effort to reduce lease expiry concentration in 2013 and, to a certain extent, 2015.

In the meantime, the REIT could probably make another two or three acquisitions if it gears up to 40%. This would be the fastest way to improve DPU.

The REIT will go XD on 25 July and its income distribution is payable on 29 August.

See presentation slides: here.

Related post:
Sabana REIT: 1Q 2012 DPU 2.26c.

AIMS AMP Capital Industrial REIT: 1Q FY2013.

DPU is 2.5c, 0.2c lower than in the last quarter. This is within expectation. Some might remember when a reader was elated that the REIT was paying 0.1c more in DPU per quarter culminating in 2.7c in the last quarter, I mentioned that it would probably not be repeated in this quarter.

The REIT will go XD on 31 July and income distribution is payable on 18 September.  With unit price at $1.30 or so, we are looking at a distribution yield of 7.69%, annualising the 2.5c DPU for the quarter (representing 97.7% of its income available for distribution). However, we are likely to see income improving towards year end and the REIT is likely to pay out all of its income available for distribution in Q4. So, the distribution yield for the whole year could be a bit higher, everything else remaining constant.

NAV/unit: S$1.40

Gearing: 29.7%

Interest coverage ratio: 6.0x

Occupancy: 99.1%

Weighted land lease expiry: 41.8 years

Average security deposit: 7.2 months

The management is actively managing the REIT's lease expiry risk and has made good progress since the last quarterly report. If it continues with the positive momentum, we could see more positive rental reversions and this could be DPU accretive.

Of the REIT's total debt of $279.4m, $113.6m is maturing in October 2013. I would like to see the REIT's manager getting this out of the way with a longer 5 years term loan instead of the usual 3 years. Of course, it makes sense to do so as it locks in a lower cost of capital in the current low interest rate environment. It will bolster investor confidence in the REIT.

For anyone investing for income and thinking to continue doing so for another few years at least, the REIT's DPU is likely to increase some 15% by end of 2013. This is very attractive and probably explains why the REIT's unit price has been on a steady climb upwards in recent weeks.

People ask if they should sell now and buy lower at a later date. People also ask me if they should buy now anyway as price could continue to go higher with expectations of a higher DPU in the coming quarters.

Answer:
I would not tell you what to do (surprise, surprise). I would share with you what I am doing: nothing. What investment I have in the REIT now is part of a core portfolio for income. Whatever I bought to trade for capital gains, I have already sold. If the REIT's unit price should weaken significantly, I would buy again. If its unit price should strengthen more significantly as to compress distribution yield by much more, then, I would consider further divestment. Now, I am keeping the status quo.

See presentation slides: here.

Related posts:
1. AIMS AMP Capital Industrial REIT: 4Q FY2012.
2. AIMS AMP Capital Industrial REIT: Making money.