20110718 - Philip - Sabana

8/6/2019 20110718 - Philip - Sabana

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Sabana Shari’ah Compliant REIT – Global largestlisted Shari’ah compliant REIT

Phillip Securities Research Pte

18 July 20Market Singapore stock exchangeSector Real estate operationsReuters SABA SIBloomberg SSREIT SPPOEMS SBNR SG

Buy(Initiation)

Closing PS$0.9

Target PS$1.11 (18.7

Last Price 0.935

52w k High (11/25/2010) 1.05

52w k Low (5/13/2011) 0.90

Shares Outs tanding (mil) 634.1171

Market Cap (S$ mil) 592.90

Avg. Daily Turnover (mil) 1.05

Free float (%) 83.52

PE (X) #N/A N/A

PB (X) 0.94

1M 3M 6M

Absolute 1.1% 0.0% -7.4%

Relative 0.1% 2.2% -2.4%

Price

Price per formance %

0.85

0.9

0.95

1

1.05

1.1

25-Nov-10 25-M ar-11

ssreit sp STI (rebased)

Major Shareholders %1 Freight Links Express Holdings 7.482 Moore Capital Management LP 4.693 Al-Salam Bank-Bahrain BSC 4.31

AnalystTravis Seah 65 6531 1229FAX 65 6536 4435 [email protected]: www.poems.com.sg

MICA (P) 004/01/2011Ref No: SG2011_0199

Trust profileSabana Shari’ah Compliant Industrial Real Estate Investment Trust (Sabana REIT) iSingapore-based REIT with a mandate to invest in income-producing industrial real estate real estate-related assets in Singapore and Asia with compliance to Shari’ah investmprinciples. Sabana REIT is the first fully certified shari’ah-compliant REIT to adopt GCooperation Council (GCC) Shari’ah Compliant standards, and provide access to Islaequity markets and diverse investor base.

Investment merits• Revaluation surplus offers potential upside to net asset value per share (NAVPS)

may act as a re-rating catalyst to share price.

• Freight Link’s expertise in chemical warehouse & logistics give them an edge ovepeers.

• Triple net master lease structures provide some form of security as the rental incois locked-in and likely to be stable and visible for the next three years.

• The adoption of GCC standards Shari’ah compliance provides additional accesIslamic equity market that is untapped by Shari’ah compliant REITs listed in Malaysia.

• Ample debt headroom leaves Sabana REIT in good position to take advantageacquisition growth.

Potential risks• Renewal of master leases in 2013 may pose a challenge to the management as 6

of the master leases based on the gross revenue will be expired in 2013.

• Listing of more Islamic REITs may compete with Sabana REIT. This may turn onbattle for the flow of funds from the Islamic equity market.

• Uncertainties in global economies could moderate Singapore economic growManufacturing sector may experience a tepid expansion compared to last year.

ValuationIn view of the short land tenure for industrial properties, we ascribe a 9.5% discount rateSabana REIT. We initiate coverage on Sabana REIT with a fair value of $1.11, representin

potential upside of ~29% with the inclusion of FY11 dividend yield of 10%. The revaluatioproperties this year is expected to increase owing to the buoyant industrial property marWe therefore opine that an increase in book value may act as a re-rating catalyst to the shprice. With Sabana REIT set forth to cross $1 billion portfolio by the year end, further upsidare expected in the 2H 2011 to drive up the share price. Future acquisition is not priced the model.

Conso' Profits EPS DPU BV ROE P/E Yield P/BV

Ending (SGM) SG cents SG cents (SG) (%) (X) (%) (x)

12/11 E 52.0 8.19 9.35 1.02 8.03% 11.41 10.00% 0.92

12/12 E 47.7 7.50 8.63 1.01 7.42% 12.46 9.23% 0.93

12/13 E 47.1 7.41 8.54 1.00 7.37% 12.61 9.13% 0.93

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Sabana Shari’ah Compliant REIT 18 July 2011

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Investment merits

Revaluation surplus offers potential upside to net asset value per share (NAVPS) and act as a re-rating catalyst to share price. Recent high bids saw in the public tenders arebound in URA industrial property price index points toward a higher property valuation at the end of FY2011.

Freight Link’s expertise in chemical warehouse & logistics give them an edge ovepeers. Jurong Island, an established petrochemical hub, which is undergoing a second ph

of growth, will open up opportunity to Sabana REIT to capitalize its growth potentiachemical logistics space due to the high demand from major oil and chemicals players.

Triple net master lease structures provide some form of security as the rental incomlocked-in and likely to be stable and visible for the next three years. Default risk is deemebe low as the Singapore economy continued to be fueled by manufacturing sector whichbellwether to gauge the consumption of industrial space.

The adoption of GCC standards Shari’ah compliance provides additional access to Islaequity market that is untapped by Shari’ah compliant REITs listed in Malaysia. cornerstone investors such as Al Salam Bank-Bahrain BSC and Capital Investment Brokerage/Jordan Limited Company underline Sabana REIT’s ability to entice investors Middle Eastern countries. Sabana REIT was included in MSCI Global Small-Cap Indices oMay 2011. This may rekindle interest not only to Middle East and conventional investorsalso to a wider pool of institutional funds and investors around the globe of who are see

stable investment returns.

Ample debt headroom leaves Sabana REIT in good position to take advantage of acquisgrowth. Approximately $123 million of loan can be leveraged before reaching 34% gearWith the credit rating expected to be issued by this year, Sabana REIT can gear up to $2million based on a comfortable gearing of 40%. Post-acquisition will give rise to distributionunit (DPU) growth.

Potential risks

Renewal of master leases in 2013 may pose a challenge to the management as 60% ofmaster leases based on the gross revenue will be expired in 2013. In the worst-case scennone of the master leases will be renewed. The management will be given a six-month gperiod to gradually takeover from the master lessees before the leases matured. occupancy rate between the master lessee and sub-tenants is not at 100%. Por

occupancy may fall when the management takes direct control from the master lessevacancy has yet to improve by then. Proactive leasing and new acquisitions engaged bymanagement will spread out the renewal risk and lengthen the weighted average master leduration prior to 2013.

Listing of more Islamic REITs may compete with Sabana REIT. This may turn on the bfor the flow of funds from the Islamic equity market. The management welcomescompetition as it will raise the industry standards. The listing of more Islamic REITs canbeneficial to Sabana REIT as a more established industry would help dispel invesunfamiliarity and subsequent hesitation.

Uncertainties in global economies could moderate Singapore economic groManufacturing sector remains as one of the key pillars of economy, may experience a texpansion compared to last year if the US economy sees a slowdown in recovery and Acountries step on the brake to curb inflation through monetary tightening.

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Trust profileSabana Shari’ah Compliant Industrial Real Estate Investment Trust (Sabana REIT) Singapore-based REIT with a mandate to invest in income-producing industrial real estatereal estate-related assets in Singapore and Asia with compliance to Shari’ah investmprinciples. Sabana REIT is the first fully certified shari’ah-compliant REIT to adopt Cooperation Council (GCC) Shari’ah Compliant standards, and provide access to Islaequity markets and diverse investor base. The initial portfolio comprises 15 indusproperties ranging from hi-tech industrials, chemical warehouses to general industrials, witaggregate gross floor area (GFA) of 3.28 million sq ft.

Figure 1: Structure of Sabana REIT

The manager Sabana Real Estate Investment Management Pte. Ltd. is the manager of Sabana REIT.manager has general powers of management over the assets of Sabana REIT. The managmain responsibility is to manage Sabana REIT’s assets and liabilities for the benefUnitholders. The manager will set the strategic direction of Sabana REIT and recommendations to the Trustee on the acquisition, divestment and/or enhancement of asof Sabana REIT in accordance with its stated investment policy.

The property manager Sabana Property Management Pte. Ltd. is the dedicated property manager of Sabana RThe property manager is responsible for providing property, management, lease managemmarketing and administration of property tax services for the properties in Sabana REportfolio.

The trusteeHSBC Institutional Trust Services (Singapore) Limited is the trustee of Sabana REIT. trustee will hold the assets of Sabana REIT on trust for the benefit of the unitholdeaccordance with the Trust Deed.

The Independent Shari’ah CommitteeThe Independent Shari’ah Committee is an external committee appointed by the manthrough the Shari’ah Adviser, comprising independent Shari’ah scholars whose role i

advise the manager on Sabana REIT’s Shari’ah compliance and issue the Shari’ah Guideland Shari’ah Certification.

The Sponsor The Freight Links group of companies is the third largest international total logistics soluproviders in Singapore by total assets. The Freight Links Group provides a comprehenarray of logistics services, and has extensive experience in storing and forwarding all typecargo. Freight Links was upgraded to the Main Board of the SGX-ST in 1998 and has a macapitalisation of S$137.8 million as at the 15 July 2011.

Source: Sabana REIT, Phillip Securities Research

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Appreciation of Shari’ah compliance

Figure 2 provides a snapshot on the differences between the conventional and Shacompliant REIT. In a nutshell, Shari’ah compliant REIT is more stringent than the conventcounterpart in terms of constraints on properties owned and must be in line with the Shaprinciples. From another viewpoint, Shari’ah compliance is actually more conservative risk-adverse in nature.

Figure 2: Main distinctions between Shari’ah compliant REIT and conventional REIT


Demystify the concerns of Shari’ah compliance

Is Shari’ah compliance status costly to maintain?Excluding the inception fee, annual compliance expenses will be between US$45,000 US$120,000 per annum. In addition, Shari’ah advisor shall also be reimbursed foreasonable costs and out-of-pocket expenses incurred. This includes the travel accommodation costs and other expenses pertaining to roadshows and seminars. compliance costs are negligible to DPU.

Is the leakage forming a substantial part of distributable income?Sabana REIT adopted a Shari’ah compliance policy that adhered to GCC standards. Onthe regulations is that Sabana REIT cannot receive more than 5% of non-Shari’ah income.incomes generated from non-core and non-permissible activities have to be cleanseddonation. In accordance to 1Q 2011 result briefing, merely 0.2% of net property income is Shari’ah compliant. The impact to DPU is therefore insignificant.

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Macroeconomic Overview: Industrial Property Sector

Manufacturing industry continued to drive the growthEconomic growth has normalized to 8.3% YoY in 1Q 2011, after posting a robust expansio14.5% in 2010. Manufacturing industry led the pack by registering 13.1% YoY groexcluding other service industries (14.5%) which were boosted by the two integrated resBiomedical manufacturing and electronic clusters were the two key drivers that underpinthe manufacturing industry in 1Q 2011. Wholesale & retail trade and transport & stoindustries, which have a sequential effect on the demand of industrial spaces, also grew 4

and 4.9% respectively in 1Q 2011.

Figure 3: Singapore GDP growth

8.3

22.5

-20

-10

0

10

20

30

40

50

1 Q 0 5

3 Q 0 5

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3 Q 0 9

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3 Q 1 0

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GDP: 2005p: YoY% GDP: 2005p: CL: sa: Annualised QoQ%

%

Source: CEIC, Phillip Securities Research

Figure 4: Singapore GDP growth by selected industry

13.1

4.5

4.9

-30

-25

-20

-15

-10

-5

0

510

15

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1 Q 1 1

GDP: 2005p: CL: GPI: ManufacturingGDP: 2005p: CL: SPI: Wholesale and Retail TradeGDP: 2005p: CL: SPI: Transport & Storage

%

Source: CEIC, Phillip Securities Research

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Business expectations in the manufacturing, wholesale & retail trade and transport & stosectors are anticipated to remain positive for the period April to September 2011. First qunet weighted balance in manufacturing (+12) and wholesale & retail trade (+15) sectorsrelatively lower than the fourth quarter of 2010. While net weighted balance in transpostorage sector improved to +5, a reversal from -3 in 4Q 2010. On a whole, business owfrom the abovementioned sectors expect a favorable business situation but less optimistic a year ago due to the uncertainties in global economies.

Table 1: General business expectations* by selected industry

Business Expectations 1Q 10 2Q 10 3Q 10 4Q 10 1Q 11Manufacturing +29 +18 +3 +20 +12

Wholesale & Retail Trade +37 +36 +37 +18 +15

Transport & Storage +24 +24 +22 -3 +5

* Figures refer to the net balance of firms in percentage terms. A plus sign indicates a positive balancenet upward trend and a minus sign denotes a negative or net down trend for the next six months.

Source: MTI, Phillip Securities Research

Headwinds may diminish the prospect in manufacturing industry but remains positivForward-looking indicators such as PMI and business expectations by selected induassociated with industrial property market are holding up year-to-date (Ytd) but the outloomuch lower than the preceding quarters. 1. There are signs that the US economy is engaa slowdown on the recovery track due to grim economic data. 2. Heading eastwardly, lostanding European sovereign debt problems have yet to be fully resolved and the exercis

protracted austerity in some of the ailing European economies may have post effect on gtrades. 3. Moving down south, political turmoil in Middle East and North Africa has put upwpressure on oil prices. 4. Closer to home, supply chain disruption caused by the bad weain Japan and tightening of monetary policies across the Asian countries with the aim to inflation has collectively sent the global financial markets into a tailspin in June. On the bside, this slowdown is not an exception for Singapore for being a trade dependent on exteeconomies. NODXs MoM sa has turnaround in May after declining for two consecutive mowhile industrial output took a beating due to a decline in biomedical output. Singaeconomy was not spared from the slowdown (in a year of moderation). With the US startinlook up and China hard landing an outlying probability, we do think the pace of global growill likely quicken 2H11.

Foreign direct investment such as German chemicals company Lanxess to invest $350 min Jurong rubber plant and Nasdaq-listed Bruker which had opened a $6 million centrexcellence at Biopolis in May 2011 as a regional headquarter are some testaments to

attractiveness of Singapore industrial landscape that appeal to foreign companies to estaa foothold here.

With NODXs upgraded to 8-10% this year, up from the previous estimate of 6-8% as weupward revision of the GDP growth forecast for 2011 from 4-6% to 5-7%, we opine thademand for industrial spaces is likely to sustain for the next few years given that the econgrowth is able to sustain at 4-5% a year going forward.

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Property Market Overview: Industrial Sector

Sabana REIT’s portfolio properties include various types of industrial buildings. This secwill focus on the specific private industrial markets that aligned with the portfolio. We examine the general private factory market followed by specific private industrial types.

Industrial sector poised to gain on the back of strong economic fundamentSingapore macroeconomic data looks healthy with manufacturing sector remains bulwareconomy despite global uncertainties. Private factory net absorption of 2.8 million s

outpaced net supply of 1.8 million sq ft in 1Q 2011 and resulted in higher occupaOccupancy rate for private factory – classified into multiple-user factory, single-user facand Business Park – has therefore crept up modestly by 0.4%-pt to 92.1% in 1Q 2compared to a sharp rise of 1.1%-pts in 4Q 2010. Averaged 10.1 million sq ft of private facsupply stream per year will be added to the factory stockpile between 2011 and 2012. Thslightly below the 5-year annual average demand of 10.2 million sq ft. With steady sucoming on-stream in the next two years, private factory rents are expected to rise moderate pace.

Figure 7: Annual net supply, net absorption and occupancy of private factory space

0

5,000

10,000

15,000

20,000

25,000

2 0 0 0

2 0 0 1

2 0 0 2

2 0 0 3

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85

86

87

88

89

90

91

92

93

Annual net supply Annual net absorption Occupancy

000 sq ft %5yr average annual

demand (2006-2010)

Source: URA, Phillip Securities Research

Figure 8: Private factory pipeline by development status

0

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4,000

6,000

8,000

10,000

12,000

2011 2012 2013 2014 2015 >2015

Under Construction Planned Completed

000 sq ft


Private multiple-user factory

Private multiple-user factory, a subset of private factory, also seemed a slight improvemen(0.3%-pt) in occupancy. Property price index of multiple-user factory has bounced backstrongly by 36.4% from the bottom in 3Q 2009 to 123.6 in 1Q 2011. It surpassed the last pof 114.9 in 3Q 2008. Development charge (DC) rate, a benchmark used to measure the taxthe enhancement in land value rose 8.3% for industrial group in March 2011, further reinfocapital escalation on industrial properties. This price uptrend is expected to continue as poconcerns within the residential sector could divert some investors’ interest to the industrialsector in search of higher investment return.

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Figure 9: Annual net supply, net absorption and occupancy of private multiple-user factoryspace

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92


000 sq ft %

5yr average annual

demand (2006-2010)


Figure 10: Price index, rental index and occupancy of private multiple-user factory

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76

78

80

82

84

86

88

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92

Occupancy Rate of Multiple-user Factory Space (Private Sector) in Whole Island

Rental Index of Multiple-user FactoryProperty Price Index of Multiple-user Factory

Index

%


Figure 11: Rental index of private multiple-user Figure 12: Price index of private multiple-factory and QoQ % change factory and QoQ % change

020406080

100120140

1 Q 0 5

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Property Price Index of Multiple-us erFactory (LHS)QoQ % change (RHS)

Index %


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Table 2: Development charge for industrial groupUse Groups Sep’09 Mar’10 Sep’10 Mar’1$ average per square metre of gross floor areaIndustrial $567 $567 $624 $67% average per change over the previous revisionIndustrial 0.0 0.0 9.9 8


Property price index of multiple-user factory is more sensitive and reacted responsively to

change in market direction than the rental index. Akin to the price index, the rental inbottomed out in 3Q 2009 and have since rebounded by 21.5% to 117.7 but still trailing bethe price index. Rental index, a laggard, will then play catch up with the price index and cup the gap in the subsequent quarters. Rental upside has more potential for growth relativthe price appreciation however the increase will be gradual due to impending private facsupply in the next two years.

Table 3: Major upcoming industrial projectsName of development Est. GFA (sq ft) Est. TOP yeaCleanTech One 343,400 201UB. One 309,200 201West Park BizCentral 1,414,600 201Woodlands BizHub 400,500 201UE Biz Hub East 510,400 201Changi City 766,000 201North Point Bizhub 383,300 201


Private warehouse

The average occupancy for private warehouse registered 92.8% in 1Q 2011, which was inwith the last peak in 3Q 2008. Likewise to multiple-user factory, property price indemultiple-user warehouse is more susceptible to the property cycle than the rental inMultiple-user warehouse price index has recovered to 120.5 and surpassed the last pea115.6 in 3Q 2008. Nevertheless, rental index of multiple-user warehouse (96.2) in 1Q 2has yet to cross the previous high of 101. With average past 5-year annual demand ofmillion sq ft exceeding the annual pipeline supply in the next three years, warehouse caand rental value are anticipated to grow at a faster pace.

Figure 13: Annual net supply, net absorption and occupancy of private warehouse space

-1,000

0

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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1Q11

80.0

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92.0

94.0


%000 sq ft

5yr average annual

demand 2006-2010


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Figure 14: Price index, rental index and occupancy of private multiple-user warehouse

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94

Occupancy Rate of Warehouse Space (Private Sector) in Whole IslandRental Index of Multiple-user WarehouseProperty Price Index of Multiple-user Warehouse

Index%


Figure 15: Private warehouse pipeline by development status

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2011 2012 2013 2014 2015 >2015

Under Construction Planned Completed


Figure 16: Rental index of private multiple-user Figure 17: Price index of private multiple-warehouse and QoQ % change warehouse and QoQ % change

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Property Price Index of Multiple-user Warehouse (LHS)QoQ % change (RHS)

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Hi-tech industrial

For the first quarter of 2011, demand for business park space gained traction from last with net absorption about twice of net supply. As a result, occupancy inched up 3.0%-pt74%.

Figure 18: Annual net supply, net absorption and occupancy of private business park spac

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2003 2004 2005 2006 2007 2008 2009 2010 1Q11

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Business park space rent which includes science park will be used as a proxy to analyzerental trend for hi-tech space as the hi-tech’s specifications are quite comparable in sextent to the business park. Median business park rent rose 5.6% to $3.80 per sq ft per min 1Q 2011, higher than 1.2% increase in the previous quarter. Office rents are somewcorrelated to business park and hi-tech rents especially when the rental gap between tdrifted apart arising from the relocation of back office outside the city centre as a chesubstitute. Office rents in central area rose significantly for the past three quarters since2010. If this growing trajectory is to persist, business park and hi-tech rents could benefit the office occupants who are sourcing for alternative spaces to ease the hefty occupacosts.

Figure 19: Median business park rents and private office rents in central area

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Business Park rents Private office rents in central area

$ per sq ft per month


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However, business park rents could feel the brunt as the occupancy was still at mid-70%the upcoming business park developments such as CleanTech One, UE Biz Hub East Changi City are expected to come on-stream within the next two years. On the other handURA’s decentralization strategy to make workplace closer to heartlanders and reducetraffic congestion in Central Business District area, has initiated the authority to mapJurong Lake District and Paya Lebar Central as the two regional commercial hubs outsidecity centre. With the establishment of decentralized offices at the emerging commercial hand further development of specialized parks such as Biopolis, Funsionopolis, CleanTech Pand proposed Data Center Park will weigh on the business park and hi-tech rents.

Property industry players are confident with the industrial sector The Real Estate Sentiment Index (RESI) report is a quarterly survey conducted jointly by Estate Developers’ Association of Singapore (REDAS) and National University of Singap(NUS) to specifically gauge the confidence of senior executives in the Singapore real esand development industry. The survey measures respondents’ perceptions and expectatof current (between now and in the past 6 months) and future (the next six months) real esmarket conditions.

For the overall real estate market performance section, net balances* of the fuperformances of business park/high tech space (+30 in 4Q 2010, +52 in 1Q 2011) industrial/logistics market sectors (+31 in 4Q 2010, +48 in 1Q 2011) increased significant1Q 2011 compared to the previous quarter. This indicates that the industry players generally sanguine on the outlook for business park/high tech space and industrial/logismarket sectors for the period between April and September.

Figure 20: RESI – 4Q 2010 Overall real estate market performance*

76

44

22

24

43

33

40

65

72

53

-4

21

32

30

31

59

-10 0 10 20 30 40 50 60 70 80

Office

Prime Residential

Suburban Residential

Prime Retail

Suburban Retail

Business Park / Hi-tech Space

Industrial / Logistics

Hotel / Serviced Apartment

Current Future

*A “net balance percentage” is used to indicate the overall direction of change in sentiment. This isdifference between the proportion of respondents who have selected the positive options (“better” “increase”) and the proportion of respondents who have selected the negative options (“worse” “decease”). A “+” sign in the scores denotes a net positive sentiment (optimism) and a “-“sign indicatnet negative sentiment (pessimism). The derived net balance scores are not weighted by the size ofrespondents’ business.

Source: Redas, NUS, Phillip Securities Research

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Figure 21: RESI– 1Q 2011 Overall real estate market performance

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Suburban Residential

Prime Retail

Suburban Retail

Business Park / Hi-tech Space

Industrial / Logistics

Hotel / Serviced Apartment

Current Future

Source: Redas, NUS, Phillip Securities Research

For the 1H 2011Government Land Sales (GLS) Programme, developers and REIT managwere aggressive during the public industrial land tenders. For instance, Kaki Bukit Road 4which is zoned for business 2 uses was hotly contested with a total of eighteen bidders. Onother hand, business park land parcel which is zoned as a white site with 40% allocatedoffice uses had attracted seven bidders with the top bid 29.1% higher than second highestThis further suggests that the industrial developers and REIT counterparts are upbeat onindustrial property sector against the backdrop of broad-based economic performance in2011 as well as less exposed to policy changes.

Table 4: Industrial GLS sites awarded year to date

*Bids were submitted but still pending approval

Source: URA, JTC, Phillip Securities Research

Location Site area Zoning Lease Price per sq ft per

gross plot ratio

Successful tenderer

(sq ft) (Gross plot ratio) (years) (no. of bids/tenders)

Ang Mo Kio Street 62 300,900 B1(2.5) 60 $170.30 (13) Sim Lian Development Pte Ltd

Kaki Bukit Road 4 264,900 B2 (1.0) 30 $156.90 (18) Soon Hock Realty Pte. Ltd.

Ubi Raod 1 / Ubi Ave 4 133,500 B1 (2.5) 60 $216.80 (6) Oxley Asced Realty Pte Ltd

Fusionopolis Link 67,800 BP-W (4.0) 60 $408.60 (7) Ascendas REIT

Irving Place 36,100 B1-W (3.5) 60 $343.50 (15)Oxley Vista Pte. LtdWoodlands Avenue 12 (Parcel 2)* 221,700 B1 (2.5) 60 $152.00 (9) OKH Development Pte Ltd

Tuas View Square* 46,900 B2 (0.9) 45 $173.9 (6) SCB Terraform Pte Ltd

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Portfolio Properties

Sabana REIT’s property portfolio can be segregated into 4 property types, namely, hi-industrial, chemical warehouse & logistics, warehouse & logistics and general industrial. various property types can be largely catered to a diverse group of end-users. Sub-teproportion is therefore consisted of a wide spectrum of trade sectors ranging from chem(11.4%), electronics (17.6%) to telecommunication and data warehousing (19.5%). Its poris highly concentrated in hi-tech industrial and warehouse & logistics in terms of gross area and gross revenue.

To some extent, the diversification of trade sectors can mitigate the economic restructuringespecially when some industrial trade sectors are being phased out due to comparaadvantage factor in relation to the neighboring countries. Being less reliance on a particsector also helped to buffer the default risk as the sources of rental are collected from mutrade sectors.

Of the 15 portfolio properties, 14 are under master lease structure and one is on mtenanted lease (9 Tai Seng Drive). Stripped out the 9 Tai Seng Drive which is not on a tnet master lease, the bulk of 60% lease based on gross revenue is slated to expire in 2and the remainder in 2015. There could be a probability that the master lessees mayrenew upon lease expiry. With new acquisitions anticipated in 2H 2011, the renewal risk wbe spread across over more years and lengthen the weighted average master lease duratio

Sponsor has granted the right of first refusal (ROFR) for the three properties to Sabana R

However, the remaining land leasehold is short and is not practical for near term acquisAdditional investments are needed to redevelop these properties before JTC would extendlease.

Table 5: Sabana REIT’s Property Portfolio

*Based on GFA as at 31 March 2011


Property Type Property

Gross Floor

Area (sq ft)

Remaining Land

Leasehold

Tenure (years)

Purchase Price

(S$'million)

% of Total

Purchase

Monthly

Rental psf

(S$)

Average

Independe

Valuation

151 Lorong Chuan 810,710 45 305.9 35.9 2.47 3

8 Commonwealth Lane 161,475 48 70.3 8.3 2.80 7

9 Tai Seng Drive 218,905 45 46.3 5.4 1.39 4

200 Pandan Loop 180,186 72 41.5 4.9 1.48 4

15 Jalan Kilang Barat 73,928 50 34.5 4.1 2.87 3

33 & 35 Penjuru Lane 286,192 38 78.9 9.3 1.79 7

18 Gul Drive 132,878 28 34.1 4 1.71 31 Tuas Avenue 4 160,361 37 28.0 3.3 1.11 2

34 Penjuru Lane 414,270 22 60.0 7 1.01 6

51 Penjuru Road 246,376 44 42.5 5 1.12 4

26 Loyang Drive 149,166 43 32.0 3.8 1.37 3

3 Kallang Way 2A 83,646 45 15.0 1.8 1.16 1

218 Pandan Loop 50,374 39 13.5 1.6 1.74

123 Genting Lane 158,907 31 24.5 2.8 1.02 2

30 & 32 Tuas Ave 8 158,846 46 24.0 2.8 1.00 2

Total/Weighted average* 3,286,220 40.9 851.0 100 85

High-tech

Industrial

Chemical

Warehouses &Logistics

Warehosue &

Logistics

General

Industrial

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16

Figure 22: Breakdown of sub-tenant base as at 31 March 2011

11.4%

17.6%

2.9%

3.5%

4.0%

6.9%15.7%

8.7%

3.5%

6.3%

19.5%

Chemical

Electronics

Engineering

Food & beverage

Healthcare

Information technology

Logistics

Others

Research & Development

Storage

Telecommunication anddata warehousing


Figure 23: Property asset by gross revenue as at IPO

High-tech

Industrial

43%

Chemical

arehouses

& Logistics18%

arehosue

& Logistics

29%

GeneralIndustrial

10%


Figure 24: Property asset by gross revenue as at IPO

General

Industrial

6%

arehosue

& Logistics

19%

Chemical

arehouses

& Logistics

16%

High-tech

Industrial

59%


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Figure 25: Weighted average master lease to maturity as at 31 March 2011*

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

2011 2012 2013 2014 2015

Lease expiry profile by gross revenue

*Excludes 9 Tai Seng Drive which is not on a triple net master leases.


Table 6: Sponsor’s properties that are subject to the right of first refusal

*As at 30 September 2010


Property Location Description GFA (sq ft)

Remaining Land

Leasehold

Tenure (years)* Completion date

30 Tuas Avenue 10, Singapore 639150 SingaporeA seven-storey warehouse complex

with ancillary offices340,339 16 Jun-09

146 Gul Circle, Singapore 629604 Singapore

Two single-storey detacted

warehouses and a single-storey

warehouse with a two-storey

ancillary office

85,263 8

August 1992 for Block

A and B; November 19

for Block C

29 Tanjong Penjuru, Singapore 609026 SingaporeA single-storey detached warehouse

with a mezzanine office level36,770 9 Sep-92

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Figure 27: Power transmission grid

Source: Singapore Power Grid

Quality of properties and niche sector count towards Sabana REIT’s winning formulAll the fifteen industrial properties are strategically situated across island. Most of them along the major transport networks and public transportation nodes, well served by underground power transmission grids (suitable for data centers that required high posupply) and are in close proximity to air- and sea- port terminals. These properties wilfurther examined within the four clusters, namely, 1. Hi-tech industrial cluster, 2. Chemwarehouse & logistics cluster, 3. Warehouse & logistics cluster and 4. General induscluster.

Figure 26: Location of portfolio properties

Source: Sabana REIT, Phillip Research Securities

Hi-tech cluster Some industries such as media and entertainment, information communication, researcdevelopment and among others preferred to house their offices and operations in hi-buildings, which are usually located near the city fringe. For instance, HBO and ESPN Sports, which have established their infrastructures at 151 Lorong Chuan (New Tech Pare unlikely to move out from the premises in the near term. Nevertheless, upcomspecialized parks such as the Mediapolis @ One-North which is touted as digital media will have the capacity to attract media industry players across the value chain. Lbroadcaster, MediaCorp, will be moving from Caldecott Hill to Mediapolis @ One-Nort2015. Anticipation of greater synergies and possible cost benefits could be the pull factorelocate.

Infocomm Development Authority of Singapore (IDA) has earmarked to establish a propodata center (DC) park which may consist of six DC buildings and take up to 12 hectares.

DC park is devised to bring in world-class internet and media companies to host their conand services here. Telecommunication and data warehousing which made up 19.5%Sabana REIT’s sub-tenants base may feel the heats from the proposed developmRelocation of sub-tenants however looks slim as the shifting of data servers which are usestore and process critical information, may disrupt outsourcing clients and end-users’ operawithout proper relocation plan. On the bright side, demand for data center is likely to gsignificantly over the next few years when cloud computing is set to take off in Singapore.establishment of dedicated DC park could have some spillover effect in enticing mtelecommunication companies to set up their base here to capture a foothold in Singaporeprovided the supporting infrastructure.

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Figure 28: 151 Lorong Chuan

Source: Sabana REIT

Figure 29: 8 Commonwealth Lane

Source: Sabana REIT

Figure 30: 9 Tai Seng Drive

Source: Sabana REIT

Figure 31: 200 Pandan Loop

Source: Sabana REIT

Figure 32: 15 Jalan Kilang Barat

Source: Sabana REIT

Tenancy: Master lease Type: High-tech IndustrialGFA: 810,710 sq ftNLA: 605,499 sq ftValue: S$305.9mEst. initial net property income (NPI) yield: 7.8% Tenants: 33 sub-tenants




Tenancy: Multi-tenanted lease Type: High-tech IndustrialGFA: 218,905 sq ftNLA: 176,535 sq ftValue: S$46.3mEst. initial net property income (NPI) yield: 7.9% Tenants: 9 tenants






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Figure 33: 33 & 35 Penjuru Lane

Source: Sabana REIT

Figure 34: 18 Gul Drive

Source: Sabana REIT

Figure 35: 1 Tuas Avenue 4

Source: Sabana REIT

Chemical warehouse & logistics cluster All the three chemical warehouse & logistics are located in the west region, strategically cloto Jurong Island (a world-class energy chemical hub), major transportation and transshipmnodes such as second link bridge and port terminals. With facilities such as very narrow (VNA) warehouse module being installed at one of the properties, which is very attractivchemical logistic operations, the likelihood of sub-tenant to continue their business operatiothe existing premises is very high.

Road works along Pioneer Road and Tuas Avenue 4 in connection with the Tuas West M

Rapid Transit (MRT) extension has brought about compulsory acquisition to a small parcland where one of the chemical warehouses at 1 Tuas Avenue 4 was located.announcement dated on 19 January 2011, the management did not see any impact onrental payable by the lessee of the property affected by the compulsory acquisition.

Moving forward, Singapore is embarking on “Jurong Island version 2.0” that will create game-changing differentiating advantages to drive the next phase of growth to the induFor instance, Shell has started up its largest integrated oil and petrochemicals cracker in 2010. Coupled with the ExxonMobil cracker to join in the bandwagon in 2011, these projects will double Singapore's ethylene capacity to 4 million tonnes per annum by 2which will help catalyze a new wave of high value downstream investments for Singapochemical industry. In view of the evolution of Jurong Island, chemical warehouse can grebenefit by providing logistics space solution to store dangerous and hazardous goods.

Tenancy: Master lease Type: Chemical warehouse & logisticsGFA: 286,192 sq ftNLA: 214,776 sq ftValue: S$78.9mEst. initial net property income (NPI) yield: 7.9% Tenants: 1 sub-tenant


Tenancy: Master lease

Type: Chemical warehouse & logisticsGFA: 132,878 sq ftNLA: 116,781 sq ftValue: S$34.1mEst. initial net property income (NPI) yield: 7.9% Tenants: 1 sub-tenant


Tenancy: Master lease Type: Chemical warehouse & logistics

GFA: 160,361 sq ftNLA: 120,340 sq ftValue: S$28.0mEst. initial net property income (NPI) yield: 7.5% Tenants: 1 sub-tenant


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Figure 36: 34 Penjuru Lane

Source: Sabana REIT

Figure 37: 51 Penjuru Road

Source: Sabana REIT

Figure 38: 26 Loyang Drive

Source: Sabana REIT

Warehouse & logistics cluster Singapore was ranked second top logistics hub in the world by a 2010 World Bank report. Thas to be attributed to the established world-class specialized infrastructure such as AirLogistics Park of Singapore (ALPS) in the airport’s free-trade zone and the ChInternational LogisPark that facilitates regional distribution. Besides that, Singapore also oexcellent global connectivity with its extensive network of logistics linkages. The sea-polinked to 600 other ports in 123 countries via 200 shipping lines. Approximately 25 mTEUs of containers were exported out of Singapore in 2009.

Sabana‘s portfolio of warehouses properties are well located to tap the flow of intermedand finished goods in and out of Singapore as most of the warehouses are either near PPanjang Terminal or ALPS and Changi International LogisPark. One thing to note is proliferation of ramp-up warehouses would make conventional warehouse less attractivsome tenants who would rather prefer long-term cost savings and greater accessibility to htheir vehicles parked at their doorstep.

Tenancy: Master lease Type: Warehouse & logisticsGFA: 414,270 sq ftNLA: 367,461 sq ftValue: S$60.0mEst. initial net property income (NPI) yield: 8.3% Tenants: 5 sub-tenants


Tenancy: Master lease Type: Warehouse & logisticsGFA: 246,376 sq ftNLA: 212,275 sq ftValue: S$42.5mEst. initial net property income (NPI) yield: 7.8% Tenants: 1 sub-tenant


Tenancy: Master lease Type: Warehouse & logisticsGFA: 149,166 sq ftNLA: 120,329 sq ftValue: S$32.0mEst. initial net property income (NPI) yield: 7.8% Tenants: 1 sub-tenant


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Financial Review

Stable and visible recurrent incomesRecurrent incomes generated from the income-producing properties are largely stable predictable without much concern in the short term as the leases are contractually bounboth parties.

Our revenue projection has priced in the rental escalation for each property in the portfol1.5 to 2.0% per annum based on the lease agreements except for 151 Lorong Chuan,

Pandan Loop and 9 Tai Seng Drive. On the other hand, the rents for the remaining aforeproperties are raised accordingly to our assumptions based on the industrial sector outlook

Since the Sabana REIT was listed on 26 November 2010, a small portion of revecontribution in 2010 was recognized in 2011. Therefore, the top and bottom lines appear thigher than 2012. With 14 out of the 15 properties are under the triple net master lstructure, rent, maintenance, land rent, property tax and insurance are borne by the malessees. Property expenses are therefore minuscule and translated to high net propincome.

Six master leases will be expired in 2013 and assumed that the multi-tenanted master lesshave no plan to renew the leases and some of these properties may not attain 100% occustatus upon expiry. In such circumstances, revenue for 2013 is expected to be slightly lowthan 2012. The dip in revenue could then be averted when Sabana REIT acquires properties and soften the portfolio vacancy. However, our model does not take into accou

new acquisitions.

Figure 39: Projected annual gross revenue, Net property income, Income availabledistribution and DPU

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

2011 2012 2013

8.00

8.20

8.40

8.60

8.80

9.00

9.20

9.40

9.60

Gross revenue (LHS) Net property income (LHS)

Income available for distr ibution (LHS) DPU (RHS)

S$'000 cents

Source: Phillip Securities Research Estimates

Limited sources of Islamic debt financing in SingaporeAt present, Islamic finance is still at the early stage of development in Singapore as compto Malaysia. Islamic debt financing is rather limited in Singapore and thus financing costsslightly higher than other Singapore-listed conventional industrial REITs. The MoneAuthority of Singapore (MAS) pledged to introduce new income tax regulations for Islafinance to ensure that Islamic financial products are not disadvantaged compared to conventional counterparts during the second Asia summit of the World Islamic BanConference that was held in June 2011. In time to come, more banks will offer Islfinancing and make borrowing cost more attractive. This bodes well with Sabana REITthere will be additional sources of Islamic funding to tap upon in the future.

Refinancing of loan could be challenging depends on the interest environment in 2013 asentire secured 3-year Commodity Murabaha Facility loan of $221 million is expected to maat one go. Based on 34% gearing, Sabana REIT has $123 million of debt headroompurchase new properties. The management is also in the process of pursuing a credit raand would allow leverage up to 60%. However, the management is conservative and has smedium to long term gearing target of 40%.

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23

Finance expenses are well covered by the operating income or EBIT with FY2011-2interest coverage ratios to fall between 4.6 and 5.2.

Figure 40: Loan maturity profile as at 31 March 2011

0

50000

100000

150000

200000

250000

2011 2012 2013 2014 2015

Secured 3-year Commodity Murabaha Facility

S$'000


Figure 41: Projected EBIT, Finance expenses, Interest coverage ratio

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

2011 2012 2013

4.40

4.50

4.60

4.70

4.80

4.90

5.00

5.10

5.20

EBIT Finance expenses Interest coverage ratio

S$'000 cents

Source: Phillip Securities Research Estimates

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Porter’s 5 ForcesTo have a better grasp on the competitiveness of industrial REITs. Porter’s 5 Forces are uto understand the strategic position of Sabana REIT within its industry at both equity malevel and product (industrial properties) offering level.

Figure 42: Porter’s 5 Forces

Source: Phillip Securities Research

Competitive Rivalry in the industry•Strong•Industrial REIT environment is quite saturatedwith six listed industrial REITs (excludingSabana REIT) and big players like AscendasREIT and Mapletree associated REITs•New Shari’ah compliance REIT may competefor the pool of Islamic equity market share

•There is tendency for tenants to vacate outdue to better and newer industrialbuildings

Threat of substitutes•Moderate•Listed business trust and developers may actas a proxy to have exposure in industrialproperty market•Some industrial properties can be easilyconfigured to suit the needs of tenants•Unlike retail space, physical space cannot besubstituted for industrial buildings•Proactive asset enhancement initiatives canretain existing tenants and attract new tenants

Buying Power •Moderate•Asymmetric information between buyer andseller (Bias towards landlord at productoffering level)•Balanced bargaining power •Semi-tight vacancy in industrial market allowstenants to have some choices to relocate

Threat of new entry•Medium barriers to entry

•Shar’iah compliance and GCC standardsrequired more stringent assessment•Tax transparency and ample liquidity in thecapital market support flotation of new REITs•Established regulatory framework pave thepath for REIT initiation•Chemical warehouses are niche offering asthey are highly specialized and regulated field

Supplier power •Moderate•Pipeline supply from sponsor is unappealing•Supply is available from third parties butlikely to be bought at a higher price•Sponsor is not a full-fledged developer andmay not have the adequate capability toprovide built-to-suit facilities to bespoke clientsother than purpose-built warehouses

Competitive Rivalry in the industry•Strong•Industrial REIT environment is quite saturatedwith six listed industrial REITs (excludingSabana REIT) and big players like AscendasREIT and Mapletree associated REITs•New Shari’ah compliance REIT may competefor the pool of Islamic equity market share

•There is tendency for tenants to vacate outdue to better and newer industrialbuildings











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25

SWOT AnalysisWe also attempt to evaluate Sabana REIT by conducting a strategic environmental scanon both internal (Strengths and Weaknesses) and external (Opportunities and Threaspects of the Trust.

Table 7: SWOT AnalysisStrengths Weaknesses

• Triple net master lease structuresreduce income volatility

•

Access to untapped Islamic equitymarket• Diverse sub-tenant base across various

trade sectors• Ample debt headroom for new

acquisitions• Demonstrated the capability to

purchase high quality buildings fromthird parties

• Leverage on sponsor’s chemicallogistics experience

• Attractive and stable dividend yield

• Limited sources of debt funding• Aggregate loan to expire in 2013

• Lack of proven track records• Pipeline of industrial properties fro

sponsor looks unappealing

Opportunities Threats

• Potential revaluation surplus due to thebuoyant industrial market

• Positive rental reversion when lease isdue for renewal

• Possible interest rate hike in 2012•

A Dubai Shari’ah compliant REIT coube listed this year • Master lessees may not be renew

upon lease expiry• Stiff competition may result in yie

compression• Uncertainties in global economies

Source: Phillip Securities Research

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Peers ComparisonSabana REIT has a short weighted average lease term to expiry relative to other indusREITs. Short term lease actually work to the advantage of Sabana REIT as industrial markexpected to perform well in the next years given no major external shocks. Early rerenewal will allow the rent to mark-to-market and result in positive rental reversion.

In term of weighted average unexpired land tenure, Sabana REIT is placed ahead of Calogistics but below or on par with the peers. Short tenure actually works against the beneSabana REIT as lower tenure will affect the property value in long run.

Cost of debt and gearing are both addressed under the financial review section above.

Management fee – comprises of base and performance fee – as a percentage of distributincome is the least across the board within the industrial REITs. Base fee of 0.5% per anof deposited property is similar amongst the peers. Performance fee is very competitivSabana REIT as the trust has set a high threshold (DPU growth > 10%) before entitled toadditional 0.5% of net property income (NPI). We believe Sabana REIT may find it difficuachieve the performance fee in short and medium term and performance fee will only kic2012 as annualized DPU for 2011 is not available. This seemed to be the lowest performafee across the industry standards. From the investor perspective, performance fee attacwith a high hurdle rate may result in slightly higher and stable DPU as the management wmore selective on the basket of yield-accretive property assets to acquire and also potesaving on performance fee payable. On the flip side, the management may take a longer to source for new properties.

The breakdown of asset types is well diversified with hi-tech industrial took up the lshare. High concentration in hi-tech industrial and chemical warehousing & logistics segmdifferentiate Sabana REIT apart from its competitors. Investors who believe in Singapopetrochemical growth story, Sabana REIT could leverage on its strength to ride on the phase of growth in petrochemical industry.

Figure 43: Key company specific parameters across industrial REITs

1. As at listing date2. A-REIT is weighted by NLA; AMP Capital is weighted by land area3. Based on debt, net of transaction costs4. Updated as of 23 May 2011

Source: Sabana REIT, Bloomberg, Trust annual reports, Phillip Securities Research

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Out of the seven Singapore-listed industrial REITs, three of them traded below its NAVThis could be explained by the backing of a strong sponsor with Mapletree Industrial TMapletree Logistics Trust and Ascendas REIT being associated with government-lincompanies (GLCs). Based on the closing price of $0.935 as at 1 July 2011, Sabana REshare price traded at a discount of 5.6% to its NAVPS.

Cache Logistics Trust (CLT) which was listed last year and with its sponsor not associated any GLCs can be a good comparable to assess how the investors perceived in relatioSabana REIT. A historical price to book (P/B) ratio is plotted to make the study m

meaningful.

Barring Sabana REIT’s initial public offering sell-down phase, both P/B ratios tracked relatclose to one another. CLT’s sponsor (CWT) pipeline supply is of good quality and is visiblacquisitions in near term which somewhat explained the gap between them. CLT madmaiden acquisitions in mid-March 2011 and another in June 2011 which are DPU accreand thus the gap has seemed widen apart. We believe Sabana REIT is also on acquismode with a purchasing power of $123 million and will then warrant a higher valuation afteacquisition.

Table 8: Relative valuation comparison across industrial REITs

*Information is based on the market closed as at 1 July 2011

Source: Bloomberg, SGX REIT Data, Phillip Securities Research

Figure 44: Price to book ratio between Sabana REIT and Cache Logistics Trust

0.8

0.85

0.9

0.95

1

1.05

1.1

1.15

1 1

/ 2 5 / 2 0 1 0

1

2 / 9 / 2 0 1 0

1 2

/ 2 3 / 2 0 1 0

1 / 6 / 2 0 1 1

1

/ 2 0 / 2 0 1 1

2 / 3 / 2 0 1 1

2

/ 1 7 / 2 0 1 1

3 / 3 / 2 0 1 1

3

/ 1 7 / 2 0 1 1

3

/ 3 1 / 2 0 1 1

4

/ 1 4 / 2 0 1 1

4

/ 2 8 / 2 0 1 1

5

/ 1 2 / 2 0 1 1

5

/ 2 6 / 2 0 1 1

6 / 9 / 2 0 1 1

6

/ 2 3 / 2 0 1 1

Sabana REIT Cache Logistics Trust

P/B ratio

Source: Bloomberg, Phillip Securities Research

Mkt. Cap.

Share

price ($)

NAV per

share ($)

NAV premium /

discount to

share price (%) P/B ratio

Annualised

Dividend

Yield

AIMS AMP Capital Industrial Trust 485.55mil 0.220 0.270 -18.5 0.83 9.82%Ascendas REIT 4.31bil 2.070 1.760 17.6 1.17 6.32%

Cache Logistics Trust 623.25mil 0.980 0.880 11.4 1.08 8.08%

Cambridge Industrial Trust 594.60mil 0.500 0.600 -16.7 0.82 9.13%

Mapletree Industrial Trust 1.73bil 1.180 0.860 37.2 1.36 6.54%

Mapletree Logistics Trust 2.27bil 0.935 0.850 10.0 1.08 6.63%

Sabana Shari'ah Compliance Industrial REIT 592.9mil 0.935 0.990 -5.6 0.95 9.42%

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ValuationDividend discount model (DDM) is commonly used valuation method to ascertain the fair vof REITs as the distribution policy is clear and related to the earnings of the firm. In view oshort land tenure for industrial properties, we ascribe a 9.5% discount rate to Sabana RWe initiate coverage on Sabana REIT with a fair value of $1.11, representing a poteupside of ~29% with the inclusion of FY11 dividend yield of 10%. Sabana REIT has recovsome lose ground at the aftermath of 11 March incidence in Japan and the worries in geconomies.

NAV-based pricing model is another measure of intrinsic value of property related stocksREIT and developers’ stock. The revaluation of properties this year is expected to increowing to the buoyant industrial property market. We therefore opine that an increase in bvalue may act as a re-rating catalyst to the share price. With Sabana REIT set forth to crosbillion portfolio by the year end, further upsides through acquisition trail are expected in the2011 to drive up the share price. Future acquisition is not priced into the model.

Figure 45: Sabana REIT trading price and FSTE Real Estate Investment Trusts Index

0.9

0.92

0.94

0.96

0.98

1

1.02

1.04

1.06

7 / 1 / 2 0 1 1

6 / 2 2 / 2 0 1 1

6 / 1 3 / 2 0 1 1

6 / 2 / 2 0 1 1

5 / 2 4 / 2 0 1 1

5 / 1 2 / 2 0 1 1

5 / 3 / 2 0 1 1

4 / 2 0 / 2 0 1 1

4 / 1 1 / 2 0 1 1

3 / 3 1 / 2 0 1 1

3 / 2 2 / 2 0 1 1

3 / 1 1 / 2 0 1 1

3 / 2 / 2 0 1 1

2 / 2 1 / 2 0 1 1

2 / 1 0 / 2 0 1 1

1 / 2 8 / 2 0 1 1

1 / 1 9 / 2 0 1 1

1 / 1 0 / 2 0 1 1

1 2 / 3 0 / 2 0 1 0

1 2 / 2 1 / 2 0 1 0

1 2 / 1 0 / 2 0 1 0

1 2 / 1 / 2 0 1 0

600

620

640

660

680

700

720

740

760

SSREIT (RHS) FTSE ST REIT (LHS)

Source: Bloomberg, Phillip Securities Research

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29

FinancialsP ro fit mo del (S$ m) 2011E 2012E 2013E B alance sheet (S$ m) 2011E 2012E 2013E

Gross revenue 74.3 69.4 68.9 Cash & equivalents 46.5 44.8 44.2

Property expenses (3.0) (2.7) (2.7) Trade and other receivables 0.7 0.7 0.7

Net property income 71.3 66.6 66.2 Total current assets 47.2 45.6 44.9

Trust expenses (0.9) (0.8) (0.8)

M anagement fees (4.8) (4.5) (4.5) Investment properties 845.9 845.9 845.9Amortisation of intangible asset (1.0) (1.0) (1.0) Other non-current assets 4.1 3.1 2.0

Donation of non-shari'ah compliant inco (0.1) (0.1) (0.1) Total non-current assets 850.0 849.0 847.9

EBIT 64.4 60.2 59.7

Interest income 0.1 0.1 0.1 Total assets 897.2 894.5 892.9

Interest expenses (12.5) (12.6) (12.7)

Net income 52.0 47.7 47.1 Trade and other payables 17.2 17.2 17.2

Net change in fair value of financial deriv 0.0 0.0 0.0 Interest bearing borrowings 0.0 0.0 0.0

Net change in fair value of properties 0.0 0.0 0.0 Other current liabilities 0.0 0.0 0.0

Total return before tax and distributions 52.0 47.7 47.1 Total current liabilities 17.2 17.2 17.2

Income tax expense 0.0 0.0 0.0

Total return after tax and before distribut 52.0 47.7 47.1 Interest bearing borrowings 217.4 219.6 221.8

Available for distributions 59.6 54.9 54.4 Other non current liabilities 15.2 15.2 15.2

Total non current liabilities 232.6 234.8 237.0

Total liabilities 249.8 252.0 254.2

Net assets attributable to unitholders 647.4 642.5 638.7

Total liabilities & equity 897.2 894.5 892.9

Gro wth & margins (%) 2011E 2012E 2013E

Revenue growth n.m. -7% -1%

EBIT growth n.m. -7% -1%

Net income growth n.m. -8% -1% P er share data 2011E 2012E 2013E

EPS growth n.m. -8% -1% EPS basic (cents) 8.19 7.50 7.41

DPU growth n.m. -8% -1% DPU (SG cents)) 9.35 8.63 8.54

Gross margin 96% 96% 96% NAVPU (S$) 1.02 1.01 1.00

EBIT margin 87% 87% 87%

Distribution margin 80% 79% 79%

C ash f lo w statement (S$ m) 2011E 2012E 2013E

Total return before tax and distributions 52.0 47.7 47.1

Key rat io s 2011E 2012E 2013E

Net (inc)/dec in working capital 31.7 0.0 0.0 ROE (%) 8.0% 7.4% 7.4%

Other operating cashflow 17.3 17.1 17.2 ROA (%) 5.8% 5.3% 5.3%

Cash flow from operations 100.9 64.8 64.3 Debt/total assets 0.24 0.25 0.25

Debt/equity 0.34 0.34 0.35

Purchase o f investment properties (845.9) 0.0 0.0 Interest coverage (X) 5.16 4.77 4.69

Others (5.0) 0.1 0.1

Cash flow from investing activities (850.9) 0.1 0.1

Dividends paid (44.7) (56.1) (54.5)Inc/(dec) in debt 220.6 0.0 0.0 Valuatio n 2011E 2012E 2013E

Common stock issuance (repurchase) 664.4 0.0 0.0 P/E basic (X) 11.41 12.46 12.61

Other financing cash flows (43.8) (10.4) (10.5) P/B (X) 0.92 0.93 0.93

Cash flow from financing activities 796.5 (66.5) (65.0) Dividend yield (%) 10.00% 9.23% 9.13%

Total cash flow 46.5 (1.7) (0.6)

Cash & cash eq at beginning of period 0.0 46.5 44.8

Cash & cash eq at end of period 46.5 44.8 44.2

Source: Co mpany, Phillip Securities Research

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Ratings History

Sabana Shari’ah Compliance REIT

Rating DateClosingprice (S$)

Fair value (S$)

Remarks

BUY 18 July 2011 0.935 1.11 Initiate coverage

TRADING BUY Share price may exceed 10% on the upside over the next 3months, however longer-term outlook remains uncertain

BUY >15% upside from the current priceHOLD -10% to 15% from the current priceSELL >10% downside from the current priceTRADINGSELL

Share price may exceed 10% on the downside over the next 3months, however longer-term outlook remains uncertain

Phillip ResearchStock Selection

SystemsWe do not base our recommendations entirely on the above quantitative returnbands. We consider qualitative factors like (but not limited to) a stock's risk rewardprofile, market sentiment, recent rate of share price appreciation, presence orabsence of stock price catalysts, and speculative undertones surrounding thestock, before making our final recommendation

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