Sabana REIT: An 8.14% yield even now!

Sabana REIT's unit price rose today as expected. It closed 3c higher per unit. Annualised, anyone who bought at $1.185 today would be looking at a distribution yield of 8.14%.

UOB KayHian has a BUY recommendation on the REIT and a target price of $1.30 which means a yield compression to 7.42%. Don't ask me how they determined the target price. I have no clue. However, their call could help push the unit price of the REIT higher if there are enough people who believe the recommendation.

What do I think?

Well, I wrote a piece not too long ago in response to a friend's question as to whether he should buy into Sabana REIT. Anyone who is thinking of buying into Sabana REIT or any other REIT for that matter might want to read that blog post: 5 steps to take in REIT investment.

What about my opinion on Sabana REIT in particular?

Well, although an 8.14% distribution yield is relatively high even when compared to AIMS AMP Capital Industrial REIT which currently yields some 6.4%, I would say that we should exercise caution as almost half of Sabana REIT's leases by gross revenue would be expiring this year.

Although I am optimistic that most, if not all, of the leases would most probably be renewed and with some positive rental reversions to boot, there is always a chance that things could go wrong. Mr. Market will be Mr. Market. Or am I wrong to say this?

For anyone who is attracted to the distribution yield and we can understand why this is so especially in the extremely low yield environment which we find ourselves, having a long position as a hedge even at the current price could be considered. However, bear in mind that we could see unit price retracing once the REIT goes XD in a few days from now.

You know yourself best (I hope). So, if seeing the unit price decline by a few percentage points would cause you anxiety, please think twice about buying now. Of course, there is no guarantee that a decline would take place but the probability is for this to happen than for price to go higher when the REIT goes XD.

For those who already have a long position in the REIT, buying when there is a retracement to support would seem like a more logical thing to do. Buying last month when unit price was at about $1.10 instead of now at $1.185 would give you an idea of what I mean.

Anyway, I will leave you with this technical picture and let's see if you can spot the signs which would suggest that caution on the part of bulls would be rather wise.

Have a good weekend.

Related posts:
1. Sabana REIT: 4Q 2012 DPU 2.41c.
2. 5 steps to take in REIT investment.

Sabana REIT: 4Q 2012 DPU 2.41c.

The management of Sabana REIT have once again exceeded their own forecast and they have announced a DPU of 2.41c for 4Q 2012.

The REIT goes XD on 23 Jan 13 and the income distribution is payable to unitholders on 28 Feb 2013.

Gearing: 37.6%

Interest cover ratio: 5.4x

NAV/unit: $1.07

All in financing cost: 4.3%

The numbers are all good except for the fact that 44.7% of leases by gross revenue are still expiring this year. There is no news on any progress made towards the renewal of these leases and that could explain Mr. Market's more cautious attitude towards this REIT.

Sabana REIT's distribution yield is currently the highest in the S-REIT universe. Annualised, we are looking at a distribution yield of some 8.38% based on the last closing price of $1.15 per unit.

Unless it is able to assure Mr. Market that all of the expiring leases in 2013 are being renewed and with positive rental reversions to boot, its unit price could find it harder to rise much higher.

In the meantime, however, we could see unit price moving higher as the REIT goes CD tomorrow.

See presentation slides: here.

Related post:
Sabana REIT: 3Q 2012 DPU 2.34c.