Sabana REIT to divest Tuas Avenue property at below book value

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Sabana Shariah Compliant Industrial REIT plans to divest the property at 1 Tuas Avenue 4 in Singapore to Kim Soon Lee (Lim) Heavy Transport for S$11.18 million, less than half its book value, as part of a strategy to refresh its portfolio, the REIT manager said on Friday.

The Tuas property is the second divestment Sabana REIT announced this week, after it said on Wednesday that it would sell a property at 9 Tai Seng Drive for S$99.6 million to ADC Singapore Trust, it said.

“These divestments are in line with the first phase of Sabana REIT’s refreshed strategy to continue to optimise its portfolio, and divest non‐performing or mature assets,” the REIT manager said in a filing to SGX on Friday after the market close.

“The net proceeds raised from the divestments will be used to pay down the trust’s outstanding borrowings, or to explore options to  optimise returns to unitholders such as value‐accretive acquisitions  – particularly in high‐spec assets and business parks, asset enhancement initiatives, or other relevant growth opportunities,” it added.

Donald Han, CEO of Sabana REIT’s manager, pointed to the divestments as signs of progress on the strategy to refresh the portfolio.

“These two divestments will immediately improve our DPU and occupancy rates, and strengthen our balance sheet to enable further growth,” Han said in the statement. DPU stands for distribution per unit.

The strategy was broken into three phases, with the immediate focus on the first two phases of divesting non-performing assets while continuing to actively manage the portfolio and undertaking asset enhancement initiatives, the filing said. The third phase is potential yield-accretive acquisitions, potentially outside Singapore, it said.

Tuas property a ‘drag on our performance’

Sabana REIT’s manager identified the 1 Tuas Avenue 4 property as a non-performing asset and had been actively trying to divest it or lease the location, it said in the filing to SGX.

“After consultations with real estate experts, the manager has concluded that it is not feasible to value or sell this property as a data center in this location, based on current market conditions,” it said.

The sale consideration of S$11.18 million for the three-storey property is 52.0 percent lower than its book value of S$23.3 million as of 30 June, as more recent valuations by Knight Frank and Suntec Real Estate Property Consultants determined market values of S$11.1 million and S$10.9 million respectively earlier this month, it said.

Below book value

“The lower valuation and sale consideration for 1 Tuas Avenue 4 will ensure we do not continue to allow it to drag on our performance amid the increasingly competitive landscape at Tuas,” CEO Han said in the statement.

The previous book value, determined by Knight Frank, had assumed that further capital expenditure would be needed to bring the property to a “tenantable” condition and that a master tenant would be found within 12 months to rent the entire property for a three-year term, it noted.

“However, the property has been vacant and remains uncompleted following the surrender of lease agreement by the former ‘data center’ master tenant,” the filing said. “The manager is of the view that it is not financially feasible to redevelop the property given the significant capital outlay and low rental yields expected in the near to medium term.”

The divestment, which is expected to be completed by the end of the year and was made on an “as-is” basis, will improve Sabana REIT’s overall occupancy to 87.5 percent from 84.5 percent, assuming it had occurred on 30 June, it said.

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