DBS Group Research’s Derek Tan and Woo Bing Yong have maintained their “buy” call on Sabana Shari’ah Compliant Industrial Real Estate Investment Trust (Sabana REIT) with a raised target price of 45 cents, up from 40 cents previously.
In a Jan 25 note, the analysts estimate that the completion of Sabana’s New Tech Park+ (NTP+) in Lorong Chuan will deliver a boost to the REIT’s FY2021 and FY2022F earnings.
The completion of asset enhancement works at NTP+ could add about $3.5 million to Sabana REIT’s revenue and boost occupancies at the REIT’s “crown jewel”.
Its FY2020 numbers are also showing improvement, as 2HFY2020 revenue improved h-o-h to $37.4 million, up 9.3% h-o-h but down 5.5% y-o-y.
Net property income (NPI) meanwhile, stood at $23.8 million, also up 14% h-o-h but down 11.7% y-o-y as Sabana REIT recovered from the Covid-19 lockdown in 1HFY2020.
They noted revenue and NPI were still lower than that of FY2019 due to lower contribution from 10 Changi South Street 2, as a result of the termination of a master lease in 2HFY2019 and higher allowances for impairment losses on receivables.
Looking ahead
On the failed merger between ESR-REIT and Sabana, Tan and Woo says all may not be lost.
Sabana REIT’s management guided that it will continue its “refreshed strategy” of divesting non-performing assets and undertaking asset enhancement initiatives (AEI) for selected properties.
ESR-REIT has also stated that it remains open to a future merger, although regulations do not allow another offer to be made within a 12-month window.
The analysts say they do not foresee Sabana REIT making any significant acquisitions during the year, with the sponsor likely to prioritise ESR-REIT for any injections.
Furthermore, an improved merger offer from ESR-REIT may also be on the cards with ESR-REIT’s CEO discussing the possibility and e-Shang Infinity Cayman continuing to hold a sizable stake in Sabana REIT.
As at 4.00pm, shares of Sabana REIT were trading at 40 cents, with a FY2021 price to net asset valuation (P/NAV) of 0.8 times and dividend yield of 7.3%.
