Sabana Real Estate Investment Management, the manager of Sabana Industrial REIT, announced that its FY2023 ended December 2023 distribution per unit (DPU) has declined by 9.5% y-o-y to 2.76 cents from 3.05 cents a year ago. This comprises the payout of 1HFY2023 DPU of 1.61 cents and 2HFY2023 DPU of 1.15 cents.
Total distribution amount declared in FY2023 declined by 7.7% y-o-y to $30.5 million due to the retention of 10% of distributable income, which will be deployed to fund costs incurred in connection with the internalisation.
Despite the decline in DPU, gross revenue for the full-year period reached an all-time high of $111.9 million, 17.9% higher than the previous year’s $94.9 million. The revenue growth was led by higher contribution from the REIT’s high-tech industrial, warehouse & logistics and general industrial properties, but was partially offset by the chemical warehouse & logistics properties, which remained unchanged y-o-y.
Consequently, net profit income (NPI) grew by 3.2% y-o-y to $55.0 million.
On a 2HFY2023 basis, revenue rose by 13.1% y-o-y to $56.6 million, due to higher rental reversions across the portfolio which saw stable overall occupancy rate. NPI for the period increased by 5.9% y-o-y to $27.8 million, uplifted by positive rental reversions, partially offset by higher utility expenses.
In FY2023, in view of the ongoing claim against a master lease tenant at 33 & 35 Penjuru Lane, the manager has taken a prudent stance and recorded a one-off impairment loss of $2.0 million. Excluding this, the REIT attained overall rental collectability of 99.8% as of Dec 31, 2023.
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Finance costs for the year under review increased by 13.4% to $12.3 million. Correspondingly, despite accounts receivable impairment, total income available for distribution in FY2023 was $33.7 million, 1.9% higher y-o-y.
Meanwhile, in accordance with resolutions passed at the REIT’s extraordinary general meeting (EGM) on Aug 7 2023, HSBC Institutional Trust Services, in its capacity as trustee of Sabana REIT, is working closely with its appointed advisers to carry out the implementation of the resolutions to protect the interests of all unitholders.
About $1.37 million of expenses were incurred in connection with, and up to, the requisition of the EGM. Following this, as at Dec 31, 2023, an additional $3.27 million of internalisation expenses were incurred in respect of implementation of the resolutions passed.
Amid the ongoing internalisation process of the REIT’s management function and costs to be incurred in connection, further retention of distributable income may be required in FY2024 and FY2025.
Given the complexity of this process, the trustee has previously stated that it is expected to take at least 12 months and potentially significantly longer to internalise the REIT management function of Sabana Industrial REIT.
During this interim period, the trustee continues to engage with the manager regularly to ensure the ongoing and stable operations of the REIT. The trustee will provide further updates as and when there are material developments.
Donald Han, CEO of the manager says: “Of note, if not for the 10% retention of distributable income as a prudent measure to fund costs incurred in connection with the internalisation, the REIT would have attained a total income available for distribution per unit of 3.05 cents, unchanged from FY2022.”
“Operationally, we have demonstrated our efforts in bolstering the resilience of our portfolio. We attained a portfolio occupancy rate of 91.2% as at Dec 31, 2023 and maintained a positive rental reversion in 4QFY2023, marking 12 consecutive quarters of positive rental reversion since 1QFY2021, and three consecutive years of double-digit rental reversion,” adds Han.
Overall portfolio occupancy rate was 91.2%, unchanged from a year ago while weighted average lease expiry (WALE) by gross rental income remained stable at 3.0 years.
For FY2023, Sabana Industrial REIT executed a total of 80 new and renewed leases totalling 0.96 million sq ft, representing approximately 26.9% of total net lettable area of 3.5 million sq ft. Tenant retention rate stood at 65.6% for FY2023. The REIT achieved positive rental reversion of 16.6% in FY2023, following consecutive positive rental reversions of 10.5% and 12.9% in FY2021 and FY2022 respectively.
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The REIT recorded higher portfolio valuation of $903.9 million as of Dec 31, 2023 for its 18 properties, compared to $885.7 million a year ago. The valuation uplift can be attributed to asset enhancement initiative, asset rejuvenation and higher signing rents for both new and renewed leases across the portfolio.
Despite the challenges of elevated construction costs, the REIT’s disciplined and vigilant project execution efforts have enabled it to lower its development cost to about $18 million from the initially projected $20 million. Han also noted that 34 Penjuru Lane has defied devaluation gravity and has achieved an uptick in valuation since June 2022 with nine years remaining on its land lease.
On the outlook, The REIT’s performance in 2024 is expected to be challenging in an environment where interest rates are likely to stay elevated and operating costs are high, and taking into consideration the impact of additional costs incurred and to be incurred in connection with the internalisation. Despite these challenges, the manager will endeavour to steer through the unfavourable business climate and optimise the REIT’s performance.
Units in Sabana Industrial REIT closed at 39 cents on Jan 23.
