Soilbuild Business Space Reit - DBS Research 2017-01-04: A helping hand from the sponsor

Soilbuild Business Space Reit - DBS Vickers 2017-01-04: A helping hand from the sponsor SOILBUILD BUSINESS SPACE REIT SV3U.SI

Soilbuild Business Space Reit - A helping hand from the sponsor


Negatives priced in, BUY and TP of S$0.75 maintained. 

  • With a dividend yield of close to 9.0%, Soilbuild Business Space Reit (SBREIT) offers one of the highest in the industrial space. 
  • Despite operational headwinds, we believe that the worst is over. SBREIT’s recent asset acquisition will diversify its portfolio, and updates on back-filling of vacated space at 72 Loyang Way will increase investor confidence for the stock. 
  • Maintain BUY.


Acquisition of Bukit Batok Connection to drive earnings as portfolio undergoes tenant churn. 

  • The timely acquisition of Bukit Batok Connection from sponsor Soilbuild Group will diversify the REIT’s earnings and lengthen its weighted average lease expiry (WALE) to 4.7 years. This more than compensates for potential operational headwinds from other assets in the portfolio. 
  • In addition, the Manager is actively re-tenanting 72 Loyang Way where Technics is expected to progressively vacate. We understand that the Manager has found tenants for a substantial portion of the space but at lower rents.


Look out for asset revaluation. 

  • We believe that portfolio valuation could soften come year end, mainly from weaker net property income portfolio-wide, and from 72 Loyang Way after the loss of income from its master tenant. 
  • Based on our estimates, a 10%-20% drop in valuations in its properties will only result in gearing rising to 37% (from 36% currently), which is well within the REIT’s comfortable level.


Valuation

  • We have a DCF-backed TP of S$0.75 which has factored in the likely NAV devaluation. 
  • Maintain BUY, supported by an attractive yield of over 9.0%.


Key Risks to Our View

  • Interest rate risks. Rise in interest rates in the medium term will have a negative impact on distributions but the Manager has substantially hedged out these risks with a high percentage of fixed-rate borrowings.




Derek TAN DBS Vickers | Singapore Research Team DBS Vickers | Mervin SONG CFA DBS Vickers | http://www.dbsvickers.com/ 2017-01-04
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 0.750 Same 0.750





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