Sabana Industrial REIT’s 1HFY2024 results for the six months to June 30 had some good news, and some bad news.
First the bad news. Financing costs rose to 4.3% in 1HFY2024, from 3.89% h-o-h and y-o-y. In June, Sabana REIT’s manager refinanced a $93 million syndicated bank loan with a $100 million 4.15% bond that matures in 2029.
Lim Wei Huang, CFO at Sabana REIT’s manager, says: “The $93 million loan was under a syndication arrangement. This is part of proactive capital management. The market was conducive."
Lim was referring to the $100 million loan being guaranteed by Credit Guarantee and Investment Facility (CGIF) a unit of the Asian Development Bank. He adds that the REIT manager had been in conversations with CGIF since 2022.
“For the refinancing, the REIT is facing operational challenges in even obtaining hedging with the banks and this option is not available to the REIT. We are seeking their waiver for the internalisation and they are still assessing it,” Lim says. “I won’t say conventional financing is not there. But there are operational hurdles we are facing with our current lenders.”
Donald Han, CEO of Sabana REIT’s manager, adds: “We did not get our general mandate in the last AGM and that reduces the additional lever to look into various ways to reduce our financing. The situation is different for us than for other REITs. And, since Aug 7, 2023, the internalisation process has cost us $8.92 million.”
In the application to the High Court of Singapore in HC/OA 19/2024 (Order 32 Application), the Court ordered that Quarz’s and the ESR Entities’ costs of the proceedings be paid out of Sabana REIT, save that Quarz may only claim 70% of its costs out of the REIT. With respect to HC/AD 37/2024 (AD 37 Appeal), the Appellate Division of the High Court has not yet determined whether parties’ costs should be paid out of the REIT. The quantum of costs in both the Order 32 Application and AD 37 Appeal remains undetermined at this juncture.
No surprise then, that, as a result of higher finance costs due to increased borrowings and higher borrowing costs, total income available for distribution fell 6.6% y-o-y to $16.6 million. Income available for distribution per unit was 8.7% lower y-o-y at 1.47 cents due to the enlarged unit base on the back of the distribution reinvestment plan. With the retention of approximately 10% of distributable income which will be deployed to fund costs incurred in connection with the internalisation, distribution amount declared per unit decreased by 16.8% y-o-y to 1.34 cents for 1HFY2024, compared to 1.61 cents in 1HFY2023.
Now for the good news. Sabana REIT suffered two master lease terminations and repossessed 33 & 35 Penjuru Lane and 30 & 32 Tuas Avenue 8. Nonetheless, Han points out that his leasing efforts have produced good results, with about 42% of the total lettable area at 33 & 35 Penjuru Lane leased out and a one-month booking fee received for around 27% of total lettable area.
See also: IHH Healthcare’s 3QFY2024 patmi remains flat at RM534 mil
“We have also quickly arranged for a number of prospective tenants to view 30 & 32 Tuas Avenue 8,” he adds.
In the meantime, Sabana@1TA4 obtained its TOP on July 9. Lease documentation is underway with a prospective tenant for the annex block, which accounts for about 64% of the property’s total lettable area.
Elsewhere, the seven-year commercial zoning for NTP+, a mall carved out of New Tech Park, is due to expire in late 2026. “There is a clause in URA that allows us to extend and we can approach the authorities for the extension. We are able to onboard tenants like Kopi & Tarts. There is a lot in the value proposition for us to maintain this as commercial zoning. It helps to support existing tenants, schools and residents. It’s a matter of procedure to get an extension by working closely with the stakeholders of NTP+,” Han says.
