Sabana REIT's logistics facility at Tai Seng Drive, Singapore. (Photo: REITsWeek)Sabana REIT's logistics facility at Tai Seng Drive, Singapore. (Photo: REITsWeek)

Ratings agency Standard & Poor’s (S&P) announced on 23 June that it has downgraded Sabana Shari’ah Compliant REIT’s long-term corporate credit rating to 'BB+' from 'BBB-'.

S&P also affirmed the Singapore-listed industrial REIT’s 'axBBB+' long-term ASEAN regional scale rating, but has subsequently withdrawn all the ratings at the request of the REIT.

“We downgraded Sabana because the REIT's balance sheet has weakened on prolonged difficult industry conditions”, said S&P in its statement, adding that negative rental reversions and higher cost of borrowing are likely to reduce the REIT’s profitability.

“Lumpy lease expiries since November 2013 coincided with an industry downturn with declining capital values and expanding capitalisation rates in the industrial space in Singapore”, said S&P.

S&P also described Sabana’s REIT’s potential equity raising exercise, in order to complete a built-to-suit transaction that is valued at approximately SGD25 million by mid-2018, as “uncertain” given subdued industry conditions and low unit prices. The REIT is thought to take on the equity raising exercise given its limited headroom to take on more debt.

However S&P noted that the REIT’s management has exhibited sound financial discipline by consistently maintaining leverage below below 40% since listing despite a temporary peak of 41.7% in December 2015, arising from significant valuation loss. That has since been brought down to below 40% in the first quarter of 2016.

Units of Sabana REIT have been trading close to its 52-week lows on the Singapore Exchange at SGD0.565.

By Ridzwan Rahmat

Ridzwan has been analysing REITs and business trusts since 2008, and personally manages a portfolio comprising mainly of SGX-listed REITs. He founded REITsWeek in 2013.