• One of the largest Shari’ah-compliant industrial REITs in the world with AUM of S$840m. 18 industrial properties located in Singapore.
• After abortion of M&A with ESR REIT, SSREIT will continue to divest non-performing assets and rejuvenate selected assets.
• Ongoing AEI like rejuvenation of flagship New Tech Park (NTP) expected to improve portfolio valuation. NTP+ Mall set to open in 2Q21.

Company Background

Listed on the mainboard of the SGX in 2010, Sabana Shari’ah Compliant Industrial Real Estate Investment Trust (SSREIT) is one of the largest listed Shari’ah-compliant industrial REITs in the world with an asset size of S$840m. It has 18 industrial properties in Singapore, situated close to expressways and public transportation. These are classified into four property segments: high-tech industrial, chemical warehouse and logistics, warehouse and logistics and general industrial. Portfolio WALE is 3.1 years.

Highlights

1. High retention rates; onboarding expansionary tenants for greater portfolio resilience. In FY20, SSREIT secured 68 new and renewed leases for 1.3m sq ft of space. This formed close to a third of its portfolio GFA. Retention rate for expiring leases was high at 73.6%. Focusing on expansionary trade sectors such as electronics, telecommunications, data warehousing and healthcare, SSREIT onboarded a US electronics company as a new anchor tenant at 23 Serangoon North Avenue 5 (23SNA5) in FY20. It also converted 3A Joo Koon Circle into a healthcare cluster.

2. AEI minimised COVID-19 impact on portfolio valuation. Rejuvenation work at 23SNA5 was completed in March 2021. This lifted its valuation by 17.4% HoH, from S$31.0m in 2Q20 to S$36.4m in 4Q20. Ongoing AEI to refresh NTP also improved the property’s valuation by 3%. NTP represents 40% of its portfolio value. Amid COVID-19 in FY20, valuers across the board increased vacancy and downtime assumptions and lowered rent-growth assumptions. Mitigated by valuation uplifts from the above two properties, its portfolio valuation dipped only by 5%.

3. Value of flagship NTP yet to be unlocked; NTP+ Mall to contribute from 2Q21. AEI is underway for 43,000 sq ft of GFA at NTP. NTP has 200,000 sq ft of GFA that is still under-utilised. SSREIT plans to refresh NTP with improved amenities. After AEI at NTP, the refreshed NTP+ will be opened to the public in 2Q21. This rejuvenation plan is expected to enhance NTP’s attractiveness as an employment-cum-lifestyle hub for the surrounding affluent/mid-income residential and educational catchment in Lorong Chuan.

Risks

1. Upcoming industrial supply to weigh on rent growth. As the economy recovers in 2021, demand for industrial space is expected to increase. However, any rent growth may be tempered by oversupply. Due to construction delays caused by COVID-19, about 0.5m sqm of industrial supply due to come through in FY20 has been pushed back to FY21. This will result in new supply of almost 4x the average annual demand of 0.7m sqm in FY21, according to JTC. As such, prices and rentals may be stable in FY21.

Source: Phillip Capital Research - 19 Apr 2021