Soilbuild Business Space REIT - DBS Research 2015-10-16: Niche Industrial Player

Soilbuild Business Space REIT - DBS Research 2015-10-16: Niche Industrial Player SOILBUILD BUSINESS SPACE REIT SV3U.SI 

Soilbuild Business Space REIT - NICHE INDUSTRIAL PLAYER 

BUY for attractive and growing yields, TP raised S$0.88. 

  • We continue to like SBREIT's ability to drive steady earnings; supported by a long WALE of 4.4 years, and having 48% of its income backed by long leases. The stock offers attractive FY16-17F yields of c.7.8%-8.0%. 
  • Our TP is tweaked higher as we account for lower-than-forecasted debt assumptions. 

Acquisitions to drive earnings; as portfolio undergoes tenant churn. 

  • SBREIT has been active in acquisitions which we believe are keys to complementing a moderating organic growth profile, given the current competitive operating landscape. Looking ahead, we are forecasting SBREIT to deliver 1-3% growth in distributions mainly from rental hikes and contribution from its recent acquisitions. Upside will come from the execution of asset purchases that is not factored into our numbers yet. 

Conservative capital management offers comfort that REIT is shielded substantially from rate hikes in the immediate term. 

  • The manager has lengthened its debt expiry profile to 4.5 years with a reduced all-in cost of debt of 3.2%, and hedged in close to 98% into fixed rates for the next 2.1 years (as of 3Q15). This will enable the REIT to weather any interest rate uncertainty in the medium term. 

Valuation: 

  • We have a DCF-backed TP of S$0.88, supported by an attractive yield of > 7.5%. 
  • Maintain BUY. 

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 % of fixed rate borrowings.


Derek Tan DBS Vickers | Rachael TAN DBS Vickers | Mervin Song DBS Vickers | http://www.dbsvickers.com/ 2015-10-16
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 0.88 Up 0.86


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