SOILBUILD BUSINESS SPACE REIT
SV3U.SI
Soilbuild Business Space Reit - Negatives Priced In
- FY16 DPU down 6.1% despite increase in top line due to an enlarged unit base.
- Revaluation loss was mainly due to write-off at Loyang Way.
- Rental reversion outlook remains weak.
- Revised TP down to S$0.70 due to NAV decline.
BUY maintained with revised TP of S$0.70.
- With a dividend yield of over 8%, Soilbuild Business Space Reit (SBREIT) offers one of the highest yields in the industrial space. Despite operational headwinds, we believe that the worst is over.
- SBREIT’s recent asset acquisition will diversify its portfolio, and updates on backfilling of vacated space at 72 Loyang Way will increase investor confidence for the stock.
- Maintain BUY.
Acquisition of Bukit Batok Connection to drive earnings as portfolio undergoes tenant churn.
- The timely acquisition of Bukit Batok Connection from sponsor Soilbuild Group will diversify the REIT’s earnings. This more than compensates for potential operational headwinds from other assets in the portfolio.
- In addition, the Manager is actively re-tenanting 72 Loyang Way where the previous tenant Technics had defaulted and since vacated. We understand that the Manager is in discussions with potential tenants for a substantial portion of the space but at lower rents.
Look out for asset revaluation.
- As we had anticipated, valuation for its portfolio (excluding Bukit Batok Connection) had softened by 3.9% in 4Q16.
- NAV fell by 10.0% in FY16 due to an enlarged unit base. As a result, gearing was pushed up to 37% from 36%.
- We expect additional revaluation losses of up to 10% to occur in FY17 mainly from weaker net property income portfolio-wide. Gearing could inch up by another c.100bps which is still within the REIT’s comfortable level.
Valuation
- We revised our DCF-backed TP to S$0.70 from S$0.75, on the back of NAV devaluation.
- Maintain BUY, supported by an attractive yield over 8.0%.
Key Risks to Our View
- Interest rate risk. Rise in interest rates will have a negative impact on distributions but such risk has been substantially hedged with a high percentage of fixed-rate borrowings.
Derek TAN
DBS Vickers
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Singapore Research Team
DBS Vickers
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Mervin SONG CFA
DBS Vickers
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http://www.dbsvickers.com/
2017-01-25
DBS Vickers
SGX Stock
Analyst Report
0.70
Down
0.750
