OCBC Investment Research 2015-07-15: Soilbuild REIT - Acquisition driven growth. Reiterate BUY.

Soilbuild REIT: Acquisition driven growth 

  • 2Q15 DPU grew 7.7% YoY 
  • 99.8% occupancy rate 
  • FY15F distribution yield of 7.5% 2Q15 results within our expectations 

Soilbuild Business Space REIT (Soilbuild REIT) reported 2Q15 results which came in within our expectations. 

  • Gross revenue jumped 17.2% YoY to S$19.6m, underpinned by additional rental revenue from three new properties acquired in 4Q14 and 2Q15. DPU grew at a slower pace of 7.7% to 1.615 S cents (advanced distribution of 0.628 S cents already paid out) due largely to an enlarged unit base from a private placement exercise carried out in May this year. 
  • For 1H15, gross revenue rose 13.9% to S$38.2m and formed 50.9% of our FY15 forecast. DPU of 3.248 S cents represented a growth of 6.1% and constituted 50.2% of our full-year projection. 

Occupancy still healthy at 99.8% 

  • Soilbuild REIT’s occupancy rate came down slightly from 100% to 99.8%, but still a healthy level, in our view. 
  • Rental reversions of 5% and 1.6% for renewal leases and new leases were achieved, respectively. 11.8% of Soilbuild REIT’s NLA is up for renewal for the remainder of 2015, and we expect management to continue its proactive approach in negotiations with existing and prospective new tenants. 
  • In terms of capital management, Soilbuild REIT has fixed 97.9% of its interest bearing borrowings (as at 30 Jun 2015), an increase from a hedge ratio of 81.9% as at end 1Q15, thus mitigating its interest rate risk. 
  • Its average all-in borrowing cost inched up from 3.28% to 3.49% due to more hedges put in place and a maiden MTN issuance. 

Reiterate BUY 

  • We maintain our BUY rating and S$0.93 fair value estimate on Soilbuild REIT. 
  • Soilbuild REIT continues to be our preferred pick within the industrial REITs sub-sector, given its attractive FY15F distribution yield of 7.5% and exposure to the business park segment, which is the bright spot within the industrial space. 

(Wong Teck Ching Andy)

Source: http://www.ocbcresearch.com/