SINGAPORE (Jan 23): Sabana Shariah Compliant Industrial Real Estate Investment Trust’s distributions per unit (DPU) in 4QFY2019 managed to rebound, rising 8.5% y-o-y to 0.77 cents. DPU in FY2019 fell 8.2% to 2.92 cents. Gearing fell to 31.1%.

Donald Han, CEO of Sabana REIT’s manager says he doesn’t plan to use his debt headroom to buy a property to increase DPU. “I’m looking within our portfolio to grow the revenue stream. I will remain focused on our current portfolio where there is potential to optimise [revenue] further.”

As an example, Sabana REIT is undertaking AEI on its largest property New Tech Park (NTP). NTP was built to a plot ratio of 1.95 times but had an allowable plot ratio of 2.5 times. Phase 1 of NTP’s AEI comprises building net lettable area of 30,000 sq ft of retail space. Although NTP is a B1 industrial property, it is located in a residential neighbourhood in Lorong Chuan, and a couple of minutes walk from an MRT.

Phase 1 of AEI completes in 2QFY2020. Tenants are likely to move in a couple of months later, in Aug. Han declines to name who his new tenants are. All he says is there will be F&B offerings in the new NLA and rental rates are likely to be in the high single digits, and higher than rents in the rest of NTP. “We are now starting to onboard tenants and response has been very encouraging in particular for F&B. We have a residential captive audience looking for dining and 3,000 office workers in this building,” Hab says.

Based on the additional rental revenue, the valuation of NTP is likely to be higher than its current valuation of $323 million.

The AEI will take NTP’s plot ratio to 2.05 times. “If we maxed out the plot ratio to 2.5 times, it will give us an additional 200,000 sq ft. This is what we are targeting rather than to buy something else,” Han says.

Phase 2 of the AEI comprises of turning the canteen into a food court which would complete in a matter of months.

The REIT has embarked on refurbishment works at 10 Changi South Street 2, which will be completed in February this year to suit the needs of its new master tenant.

“We’ve got a fair amount of unutilised plot ratio but undertaking AEIs would affect tenants ability to function. So we look at which prop would generate highest return,” Han says.

Unfortunately in some areas, there is a lot of supply, for instance there is speculative building of properties in Jurong West and Punggol. “The smart decision is to build in areas where there is no supply, eg in a central location where for every $1 I put in I get highest rental return. You need to be where you build and tenants will come or compete for your property,” Han says.

"We are evaluating 10 Changi South Street 2 which has unutilised plot ratio. We haven’t done cost benefit analysis and there are other propositions. We will ensure there is demand to for a redevelopment, or we could undertake AEI if someone requests for a build-to-suit facility where we pre-sign the contract,” Han says.

In 4QFY2019 Sabana REIT’s portfolio occupancy dipped to 75.4% because of the end of a master lease at 3A Joo Koon Circle. Han says he is in advanced negotiations with a potential anchor tenant to take up 50% of the space at 3A Joo Koon Circle.