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.

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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%.