Soilbuild Business Space REIT - Phillip Securities 2016-10-13: Challenging times in a subdued market

Soilbuild Business Space REIT - Phillip Securities 2016-10-13: Challenging times in a subdued market SOILBUILD BUSINESS SPACE REIT SV3U.SI

Soilbuild Business Space REIT - Challenging times in a subdued market

  • S$19.73mn gross revenue in line with our expectations of S$19.77mn.
  • 1.399 cents DPU exceed our expectations of 1.312 cents by 6.6%.
  • 151,145 sq ft of renewals and new leases signed.
  • Portfolio occupancy edged up to 94.8%.

Portfolio occupancy edges up to 94.8%, from 92.0% in the previous quarter 

  • This was due to higher occupancy at West Park BizCentral and inclusion of Bukit Batok Connection into the portfolio. 
  • Portfolio occupancy would have been 94.2% instead, without Bukit Batok Connection.

Successful leasing, but with rental reversion of -6.6% on forward renewals 

  • The Manager had signed 151,145 sq ft from seven new leases and two forward renewals.
  • The seven new leases signed were all from West Park BizCentral. Among them, four were for 2-3 years and three were short-term of four months. For the forward renewals, one was from Tuas Connection and the other from Eightrium. 
  • Negative rental reversion has worsened, as it was -5.7% in 2QFY16, and -0.6% in 1QFY16. Better occupancy of 90.8% (from 82.7%) at West Park BizCentral was the lone bright spot.

Limited exposure to interest rate fluctuation 

  • Weighted average debt maturity is 2.2 years, with no refinancing requirements till 2018.
  • 88.5% of borrowings are at fixed rate. Aggregate leverage of 36.0% allows headroom of S$88mn.

Update on Technics Offshore Property 

  • The Manager is in negotiations with three potential tenants – two of whom are considering long-term leases of 5-10 years, while the third is short-term of one year. Occupancy at the property will be c.80%, if all three tenants sign a lease. 
  • As of our previous report (11 October), we had assumed an occupancy of 60% from 3QFY17 onwards, coinciding with the depletion of the 18-months security deposit. Our assumption is subject to change, as greater clarity emerges.

Maintain "Neutral" rating with slightly higher of target price of S$0.72 (previous: S$0.69) 

  • We under-estimated this quarter's distribution per unit (DPU) by 6% and have made adjustments to our forecasts. Unitholders can expect higher quarter-on-quarter (qoq) DPU in 4QFY16, due to contribution from Bukit Batok Connection, but lower year-on-year (yoy) DPU due to the larger Unitholder base following the Preferential Offering.

Richard Leow CFTe Phillip Securities | 2016-10-13
Phillip Securities SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 0.72 Up 0.690