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