Awaiting earnings growth catalysts
- Strong set results in FY21 that have been powered by NTP+ and other AEIs
- Expect a DPU CAGR of c.7.0% over the next two years as AEIs bear fruit
- Potential AEIs and acquisitions to generate upside to earnings, but requires more clarity
- Maintained TP of S$0.48 but downgrade to HOLD on valuations
Investment Thesis
NTP+ completion to deliver boost to FY22F earnings. The completion of NTP+ is projected to add c.S$3.5m to Sabana REIT’s revenue and boost occupancies and rental reversions at the REIT’s “Crown Jewel”. Hence, we are forecasting a DPU CAGR of c.7% over the next two years.
Targeted asset enhancements to drive growth. Having successfully completed five AEIs in the past year that led to portfolio revaluation gains and earnings growth, SSREIT will continue to focus its efforts on more portfolio rejuvenation initiatives. With AEIs at 1 Tuas Avenue 4 currently on the cards, we believe that more clarity on such plans and firm pre-commitments for the property will drive earnings upside.
Exciting growth plans ahead, but require more clarity. As SSREIT continues to focus on rejuvenating its portfolio, it is ready to embark on acquisitions in the near to medium term. Although SSREIT’s capital management fundamentals are conducive for acquisitions, stiff competition for quality industrial and logistics assets could pose a hurdle. As such, we hope to see more clarity on SSREIT’s ability to acquire accretively in the coming years to achieve their targeted S$1.0bn AUM.
Valuation:
Maintain TP of S$0.48, downgrade to HOLD based on DCF with a WACC of 7.0%. Our TP represents an implied FY22F yield of 7.0%.
Where we differ:
We are the only house covering the stock. That said, we have assumed an uplift in earnings in the next two years driven by the recent completion of NTP+ and other AEIs.
Key Risks to Our View:
Resurgence in COVID-19 in Singapore, leading to another round of COVID-19 rental rebates, could affect DPU as seen in 1H20.