Soilbuild Business Space REIT - OCBC Investment 2016-04-15: Soft Start To The Year

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SOILBUILD BUSINESS SPACE REIT SV3U.SI 

Soilbuild Business Space REIT - SOFT START TO THE YEAR 

• 1Q16 DPU slipped 4.7% YoY 
• 94.8% occupancy rate 
• FV lowered but still a BUY 

1Q16 results within our expectations 

• Soilbuild Business Space REIT (Soilbuild REIT) reported its 1Q16 results which came in within our expectations. 
• Gross revenue rose 8.2% YoY to S$20.1m, largely due to additional rental contribution from Technics and Solaris, but partially offset by a dip in revenue from West Park BizCentral and Tuas Connection. This formed 23.9% of our FY16 forecast. 
• Although Soilbuild REIT’s distributable income consequently increased 9.6% YoY to S$14.6m, its DPU fell 4.7% to 1.557 S cents as a result of a larger unit base from a private placement exercise carried out in Apr 2015. This constituted 23.9% of our full-year projection. 

Drag from two multi-tenanted buildings 

• As mentioned earlier, Soilbuild REIT’s results were impacted by lower revenue from two of its multi-tenanted buildings. Occupancy for West Park BizCentral declined from 94.2% (as at 31 Dec 2015) to 92.3%, while Tuas Connection suffered a bigger sequential dip of 7.2 ppt to 86.3%. 
• Overall portfolio occupancy slipped from 96.8% to 94.8%. 
• During the quarter, Soilbuild REIT secured 282,920 sq ft of renewals and new leases. The renewal leases were signed with a positive rental reversion of 6.6%, while forward renewal leases registered a slight rental decline of 0.6%. 
• For the remainder of 2016, management has 7.2% (or ~250,000 sq ft) of lease expiries (by both NLA and gross rental income) to work on. 

Pare our forecasts but maintain BUY 

• We lower our FY16 and FY17 DPU forecasts by 4.4% and 4.2%, respectively, as we opt to input higher finance costs and more conservative occupancy rate assumptions for West Park BizCentral and Tuas Connection in our model. 
• Consequently, our DDM-derived fair value estimate is trimmed from S$0.85 to S$0.82. 
• Notwithstanding our reduced projections and fair value, we opine that valuations for Soilbuild REIT remain attractive, as the stock still trades at FY16F distribution yield of 8.3%. This comes in ~0.7 standard deviations above its forward mean of 8.0% since its IPO. 
• Maintain BUY.

Wong Teck Ching Andy CFA OCBC Securities | http://www.ocbcresearch.com/ 2016-04-15

OCBC Securities SGX Stock Analyst Report BUY Maintain BUY 0.82 Down 0.85