Soilbuild REIT - OCBC Research 2015-10-15: Delivering growth despite challenging conditions

Soilbuild REIT - OCBC Research 2015-10-15: Delivering growth despite challenging conditions SOILBUILD BUSINESS SPACE REIT SV3U.SI 

Soilbuild REIT: Delivering growth despite challenging conditions 

 3Q15 DPU rose 5.1% YoY 
 98.7% occupancy rate 
 FY15F distribution yield of 7.8% 

3Q15 results within our expectations 

  • Soilbuild Business Space REIT (Soilbuild REIT) reported an in-line set of 3Q15 results, with gross revenue and DPU growing 22.4% and 5.1% YoY to S$20.7m and 1.625 S cents, respectively. This was driven largely by contribution from three properties (KTL Offshore, Speedy-Tech and Technics) which were acquired between Oct 2014 and May 2015. 
  • NPI jumped 25.3% YoY to S$17.8m, resulting in a 2.0 ppt expansion in its NPI margin to 85.9%. We note that this was the fourth consecutive quarter in which Soilbuild REIT increased its NPI margin on a QoQ basis. 
  • For 9M15, gross revenue accelerated 16.7% to S$58.9m, while DPU increased 5.8% to 4.873 S cents. These constituted 73.9% and 75.9% of our FY15 forecasts, respectively. 

Positive rental reversions 

  • Soilbuild REIT’s occupancy rate came down slightly from 99.8% to 98.7%, but this had already been flagged out by management as a potential issue at the start of the year. Positive rental reversions of 4.5% (200,539 sqft of space) and 1.4% (56,533 sqft of space) were secured for renewal leases and new leases, respectively, in 3Q15. 
  • In terms of capital management, Soilbuild REIT has fixed 97.9% of its interest bearing borrowings (as at 30 Sep 2015) for 2.1 years. Its weighted average all-in cost of debt declined from 3.49% to 3.20%. 

Maintain BUY 

  • Based on advance estimates released yesterday, Singapore’s economy expanded by 1.4% YoY in 3Q15, but this was a moderation from the 2.0% growth achieved in 2Q15. The manufacturing sector remained sluggish, contracting by 6% YoY, with the drag coming largely from the electronics, biomedical manufacturing and transport engineering clusters. 
  • Despite this soft outlook, we believe Soilbuild REIT has managed to stay resilient, which we attribute to management’s proactive approach and asset quality. 
  • Reiterate our BUY rating and S$0.93 fair value estimate on Soilbuild REIT. The stock offers an attractive FY15F distribution yield of 7.8%. 
  • Key risks to our projections include renewal risks from 8.5% of its NLA which is expiring for the remainder of the year. 

Wong Teck Ching AndyCFA OCBC Securities | 2015-10-15
OCBC Securities SGX Stock Analyst Report BUY Maintain BUY 0.93 Same 0.93