Brokers' take: DBS positive on Sabana Reit's newly completed NTP+, ups TP to 49 S cents

THE recent completion of retail mall NTP+ will likely continue boosting FY2021 and FY2022 earnings for Sabana Real Estate Investment Trust (Reit), DBS said in a research note on Friday. (see amendment note)

The research team raised its target price for the Reit to S$0.49 from S$0.45, after it increased growth estimates in Sabana Reit's net property income to 18.4 per cent and 5.3 per cent for FY2021 and FY2022, respectively.

Units of the industrial property-focused Reit were trading flat at S$0.44 as at 10.21am on Friday.

DBS noted that the Reit had already posted an improved performance in H1 FY2021 amid a higher portfolio occupancy, and expects the NTP+ property will continue to add around S$3.5 million to the Reit's revenue and boost occupancies and rental reversions.

Sabana Reit's completed asset enhancement initiatives (AEIs) - at its 151 Lorong Chuan, 8 Commonwealth Lane, 23 Serangoon North Ave 5 and 10 Changi South Street 2 properties - will likely also generate further demand for these assets and be an upside to its distribution per unit, the research team added.

Furthermore, DBS, which has a "buy" call on the counter, said the Reit's conversion of borrowings to an unsecured status may free up around S$700 million in investment properties from encumberment and raise its debt headroom, which could be used to fund new acquisitions or AEIs.

Sabana Reit's decision to remove compliance with Shari'ah requirements in October should also provide access to more diversified funding sources and a larger pool of tenants, the research team added.

Additionally, although DBS noted that the Reit's upcoming supply of multiple-user factories may pose risks, Covid-19 construction delays may still deliver a boost in demand for Sabana Reit's assets in H2 FY2021, with demand for its multiple-user factory space being higher than available stock since Q3 FY2020.

Amendment note: A previous version of this article incorrectly named NTP+ as New Tech Park+. The article has been amended to reflect this change.

READ MORE: Sabana Reit's H1 DPU trebles to 1.48 S cents; to remove Shari'ah compliance requirement

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