Soilbuild Business Space REIT - DBS Research 2016-04-15: Holding firm despite challenges

Soilbuild Business Space REIT - DBS Research 2016-04-15: Holding firm despite challenges SOILBUILD BUSINESS SPACE REIT SV3U.SI 

Soilbuild Business Space Reit - Holding firm despite challenges 

  • 1Q16 DPU dipped 4.7% y-o-y; in line with expectations 
  • Reversions remain healthy at 6.6%; Manager looking to work on raising occupancies 
  • Tapping sponsor acquisition pipeline to grow 


BUY for attractive and growing yields. 

  • With yield of c.8.4%, one of the highest in the S-REIT universe, we believe that negatives are priced in and SBREIT remains an attractive laggard play among peers. 
  • Its quality portfolio of business parks and hi-tech factories, coupled with a long WALE of 4.7 years should weather the REIT through the current soft operating climate. 

Acquisitions to drive earnings as portfolio undergoes tenant churn. 

  • SBREIT has been active in acquisitions which we believe is key to address its moderating organic growth profile, given the current competitive operating landscape. 
  • Despite potentially weak earnings in 2016, we believe that the Manager’s proactive asset management strategy will enable the REIT to deliver resilient dividends going forward. 
  • Upside will come from acquisitions that are 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 3.6 years with all-in cost of debt of 3.36%, and has hedged close to 100% into fixed rate. This provides a buffer against any interest rate uncertainty in the medium term. 

Valuation: 

  • We have a DCF-backed TP of S$0.84, supported by an attractive yield of c.8.4%. 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 percentage of fixed rate borrowings. 



Derek Tan DBS Vickers | Mervin Song CFA DBS Vickers | Singapore Research Team DBS Vickers | http://www.dbsvickers.com/ 2016-04-15
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 0.84 Same 0.84


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