Results First Take: 1Q22 Business Update – More AEIs in the works
- Portfolio operations remained relatively stable, and more AEIs that could drive organic growth
- Key positives: (i) positive rental reversions of 4.0%, (ii) DRP and cash flows from operations have been used to pare down debt, and (iii) advanced negotiations to lease out 30 & 32 Tuas Avenue 8 to a master tenant
- What we are watching: (i) slight dip in overall portfolio occupancy to 85.2%, (ii) how the planned AEIs at 1 Tuas Avenue 4 and New Tech Park will be financed; and expected ROIs.
- Maintain HOLD with a TP of S$0.48
| Key operational data | 1Q2022 | 4Q2021 | % Change | 1Q2021 | % change |
| Portfolio occupancy (%) | 85.2% | 85.4% | -0.2% | 79.0% | 6.2% |
| WALE (years) | 2.7 | 2.7 | 0 | 3 | -0.3 |
| Rental Reversion | 4.0% | 9.4% | -5.4% | 3.1% | 0.9% |
| Aggregate Leverage | 34.8% | 35.0% | -0.2% | 35.9% | -1.1% |
| Interest Coverage Ratio | 4.1 | 4.4 | -0.3 | – | – |
| All-in cost of debt | 3.1% | 3.1% | -0.1% | 3.4% | -0.3% |
(+) Continued positive rental reversions of 4.0%
- More than 220,000 sqft of leases signed and renewed in 1Q22
- Another quarter of positive rental reversion of 4.0%
- Lease expiry for the rest of FY22 (by GRI) reduced to c.22%
- No master lease expiry in FY22
(+) DRP has been utilised to pare down debt
- Gearing inched down 0.2% q-o-q to 34.8% in 1Q22
- Proceeds from DRP and cash flow from operations used to pare down debt
- All-in borrowing costs improved from 3.14% to 3.07%
- S$150m sustainability-linked loans secured to refinance the secured loans due in FY24
- New loan secured at lower interest rates
- Weighted average tenor of borrowings increased from 2.9 years to 3.5 years
(-) Portfolio occupancy inched down slightly to 85.2%
- Portfolio occupancy inched down 0.2% q-o-q to 85.2% in 1Q22
- In advanced negotiations with prospective master tenant for 30 & 32 Tuas Avenue 8
- Planned AEIs at 1 Tuas Avenue 4 and New Tech Park
- Targeting second major AEI at 1 Tuas Avenue 4; potentially converting building into multi-tenancy property
- Activation of Phase 3 AEI at New Tech Park to maximise plot ratio and add c.200,000 sqft of Business 1 Space
Our thoughts
Sabana REIT reported another quarter of positive rental reversions of 4.0% in 1Q22, and continue to proactively work on lease expiries in FY22. Although portfolio occupancy inched down slightly, negotiations with a prospective master tenant for 30 & 32 Tuas Avenue 8 will lead to a significant improvement in overall portfolio occupancy.
We will keep a close watch on the AEI plans for 1 Tuas Avenue 4 and the maximisation of plot ratio of New Tech Park. Any precommitments for these spaces will be a positive for Sabana REIT, and until there is more certainty in place, we will maintain our HOLD recommendation with a TP of S$0.48.