Atas and healthy lunch.

I decided that I should treat myself to an atas and healthy lunch once or twice a week from now on.

What is in the box?


One.


Two.


Three.


Time's up!

Salad!

Price? An atas $3.50.

Related post:
What's for lunch?

Sabana REIT: 3Q 2013 results and outlook.

Sabana REIT has announced a DPU of 2.38c which is slightly higher, year on year, but slightly lower, quarter on quarter. Some other numbers:

NAV/unit: $1.06
Aggregate leverage: 37.5%
Interest cover ratio: 5.0x

The recent decision by Sabana REIT to purchase a half vacant property from AMD generated quite a bit of concern. Although the management of the REIT suggested that they are quite confident that they would be able to find tenants to fill up the space, it remains to be seen if they could deliver.

Well, you know what they say about how it never rains but it pours? It now seems that Sabana REIT's management will have more vacant space to deal with come 25 November 2013. This is because 4 of the expiring Master Leases will not be renewed.

Now, before we go into a hysteria, the vacant space represents only 6.6% of the REIT's NLA.

As investors for income, we are really concerned with how income distributions could be impacted by all these. Realistically, we have to expect some downward revision.

Taking the DPU of 0.18c from 24 Sep to 30 Sep 13 as a guide, I estimate a DPU of 2.16c for 4Q 2013. This is a 10% reduction from 2.38c for 3Q 2013.

There is nothing rigorous in this estimate. It really is just 0.18c x 12 weeks.

If I were to instil a bit more rigor in this non-rigorous exercise, I would say the DPU could be closer to 0.18c x 7weeks + 0.168c x 5 weeks = 2.1c. This is to account for the loss of income from the 6.6% of NLA vacated through the non renewal of the 4 Master Leases mentioned earlier.

Based on the closing price of $1.10 per unit, this gives us a distribution yield of just 7.64% which brings us closer to the distribution yield offered by AIMS AMP Capital Industrial REIT currently. It seems that Mr. Market is quite efficient. Does this mean that Mr. Market will not go into a manic depression tomorrow? Your guess is as good as mine.

There is a chance that Sabana REIT could manage some positive rental reversions with the sub-tenants and command a higher psf rental for the vacated space in 2014 relative to what the Master Leases were paying. If we are level headed, we will realise that as long as Sabana REIT achieves higher occupancy again, DPU will improve from my back of the envelope estimate. While there exist a chance that Sabana REIT might not achieve higher occupancy again, this probability is rather low.

At the current unit price of $1.10, I believe that Mr. Market has priced in the negatives. If there should be a 10% or so decline in unit price, I would consider it a mispricing which would give interested investors an opportunity to buy in for an attractive yield of about 8.5% with a possibility of some upside in 2014 thrown in.

See presentation slides: here.

Related post:
Sabana REIT: 2Q 2013 results.