SOILBUILD BUSINESS SPACE REIT
SV3U.SI
Soilbuild REIT - Challenges At 72 Loyang Way
- 2Q DPU drops 6.3% YoY.
- Loyang is the wild card.
- FY17F yield of 8.0%.
2Q17 results within expectations
- Soilbuild Business Space REIT (Soilbuild REIT) reported 2Q17 gross revenue of S$21.6m, representing an increase of 10.1% YoY and 25.2% of our full-year forecast.
- DPU fell 6.3% to 1.466 S cents, partly due to payment of property management and lease management fees in cash instead of units. 2Q17 DPU came in within our expectations at 25.6% of full-year forecast.
Portfolio occupancy rose from 91.8% (as at end- 1Q17) to 92.6%.
- For leases renewed during the quarter, rental reversions were relatively flat while for renewals secured in advance, a -9.8% reversion was clocked. In 2H17, 7.6% of Soilbuild REIT’s portfolio NLA is up for renewal.
- 72 Loyang Way occupancy increases 12.9ppt to 22.8% The security deposit received for 72 Loyang Way has been fully utilized during the quarter; the asset’s occupancy came in at 22.8% in 2Q17, up from 9.9% in 1Q17.
- Recall that Soilbuild REIT has obtained approval from JTC to lease out up to 30% of the property’s GFA to non-oil and gas related tenants. We currently project that the 30% of the space will successfully be leased out by FY18, while the other 70% of the NLA will remain unoccupied till FY20.
Reiterate HOLD
- With a change in covering analyst, we apply a DDM using our new DPU estimates with a lower cost of equity (9.3% instead of 9.7% previously).
- Despite the significant headwinds facing Soilbuild REIT’s multi-tenanted assets, we believe the REIT will be buffered by the stability of contributions from its numerous master leased assets as well as the prospect of a bottoming market in the industrial space this year.
- The upcoming expiry of the Solaris master lease is expected to be largely NPI neutral based on our projections.
- As a result of some adjustments, our FY17F DPU increases from 5.7 S cents (previous forecast) to 5.9 S cents (current forecast). Our fair value increases from S$0.64 to S$0.67.
- Based on our new projections and last Friday’s closing price, Soilbuild REIT is trading at a P/B of 1.0x and a distribution yield of 8.0% for FY17F.
- We maintain HOLD with a fair value of S$0.67.
Deborah Ong
OCBC Investment
|
http://www.ocbcresearch.com/
2017-07-17
OCBC Investment
SGX Stock
Analyst Report
0.67
Up
0.640
