Sabana REIT: 2H21 net property income up 10%, eyes acquisitions ahead

Singapore two-dollar bills
  • Sabana Industrial REIT reports 2H21 net property income rose 10.4%
  • Occupancy rate rose to its highest since 2018
  • REIT said acquisitions may be on the cards after divesting non-performing assets

Sabana Industrial REIT reported Thursday its net property income for the second half of 2021 increased 10.4 percent on-year to S$26.26 million as overall portfolio occupancy improved to its highest since 2018.

Gross revenue for the six months ended 31 December grew 14.4 percent on-year to S$42.82 million, the Singapore-based industrial REIT said in a filing to SGX. 

The revenue increase was mainly due to higher contributions from properties at 151 Lorong Chuan (New Tech Park), 23 Serangoon North Avenue 5 and 10 Changi South Street 2 on higher occupancy rates, Sabana REIT said.

The distribution per unit (DPU) for the second half was 1.57 Singapore cents, down 31.4 percent from 2.29 Singapore cents in the year-ago period, but based on DPU from operations, the distribution from 2020’s second half was 1.41 Singapore cents, up 11.3 percent on-year, the filing said. 

The 2020 DPU had included a one-off rollover adjustment from prior years and the withheld DPU retained in the first half of 2020 for prudent cash management amid uncertainties caused by the Covid-19 pandemic, the filing said.

Occupancy climbs

Occupancy for the overall portfolio grew to 85.4 percent at end-2021, up from 76.5 percent at end-2020, Sabana REIT said.

The increase was due to the new lifestyle mall, NTP+, located in the New Tech Park, reaching 100 percent occupancy, and higher occupancy across the portfolio, the REIT said, adding 12 out of its 18 properties reached occupancy rates of 90 percent or above by end-2021.

Sabana REIT attributed the higher occupancy to efforts to attract tenants in expansionary sectors, such as electronics, healthcare, data center and logistics, and as NTP+ attracted the food and beverage and retail sectors. 

Rental reversions for the full year were a positive 10.5 percent, compared with positive 0.9 percent in 2020, and well above 2018’s negative 3.6 percent, the REIT said.

Preparing for acquisitions

The REIT’s management pointed to the results as a sign its three-phase “refreshed strategy,” announced in 2018, was bearing fruit. 

The first phase involved divesting non-performing assets and actively managing the portfolio, the second phase was to undertake asset enhancement initiatives (AEIs), and the third phase was to seek acquisitions, potentially outside Singapore. 

“We have stabilised and uplifted Sabana’s performance and are ready to further intensify Phase 2 and move into Phase 3 of our refreshed strategy to execute growth. This has come after the management and the board maintained a  disciplined focus on converting several ‘challenging’ master leases into multi-tenancies, proactive asset enhancement initiatives (AEIs) and multiple asset rejuvenations,” said Donald Han, CEO of the REIT’s manager, in the statement.

Tan Cheong Hin, chairman of REIT’s manager, said the strategy was “well executed” despite the pandemic’s challenges, with “AEIs and asset acquisitions on the cards from 2022 onwards.”

Where will the acquisitions come from?

The REIT’s statements didn’t indicate where it’s looking for acquisitions. 

Jason Yap, an analyst/Insight Provider who publishes on Smartkarma, said in a note that the REIT’s sponsor seemed unlikely to inject assets into Sabana REIT. 

In late 2020, ESR-REIT‘s bid to acquire Sabana REIT was scuttled by activist shareholders; both ESR-REIT and Sabana REIT share the same sponsor, ESR Cayman.

Yap, in his note published on 12 January, before the results release, said he expected ESR Cayman would prioritise ESR-REIT over Sabana REIT for any asset injections.

For the full year, Sabana REIT reported net property income increased 16.4 percent on-year to S$51.95 million, while gross revenue increased 14.2 percent on-year to S$81.91 million. The DPU for the full year was 3.05 Singapore cents, up 10.5 percent from 2.76 Singapore cents in 2020, the filing said.

Outlook

In its outlook, the REIT noted Singapore’s economy is gradually recovering, but the Covid-19 situation still posed uncertainty. 

But it noted Singapore industrial rents in 2021 increased 1.9 percent on-year and the city-state’s occupancy rates increased 0.5 percent on-year in the third quarter of 2021 on higher demand for storage amid delays in new completions. The pandemic has exacerbated Singapore’s shortage of construction workers, and previous lockdowns to stem the virus’ spread has delayed some construction timetables.

Sabana Industrial REIT was previously called Sabana Shariah Compliant Industrial REIT, but the REIT removed the need for Shariah compliance in 2021.

Read more about Sabana Industrial REIT’s portfolio


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