Soilbuild REIT - OCBC Investment 2017-10-16: Trading At 7.4% FY18F Yield

Soilbuild REIT - OCBC Investment 2017-10-16: Trading At 7.4% FY18F Yield SOILBUILD BUSINESS SPACE REIT SV3U.SI

Soilbuild REIT - Trading At 7.4% FY18F Yield

  • Soilbuild REIT 3Q17 results within expectations.
  • 3Q17 DPU dropped 1.8% YoY.
  • Fair Value Estimate remains at S$0.66.

Keeping our NK assumptions for now 

  • Soilbuild REIT's 3Q17 gross revenue increased 4.1% YoY to S$20.5m, or 24.2% of our full-year forecast.
  • 3Q17 DPU dropped 1.8% YoY to 23.1% of our full-year forecast, which we consider to be within expectations albeit on the lower end. 9M17 DPU came up to 72.9% of our full-year forecast. 
  • As discussed in our last report (Soilbuild REIT - OCBC Investment 2017-09-20: Tenant NK Ingredients In Arrears), Soilbuild REIT’s trustee issued a letter of demand to master lease tenant NK Ingredients (NK) for arrears amounting to S$3.4m, and has called upon an insurance guarantee amounting to S$5.1m. Soilbuild REIT has since received its claim on the insurance guarantee amounting to S$3.4m on 10 Oct. 
  • Pending further updates, we keep our assumption of a 65% chance that NK will be unable to repay its arrears within seven days from the call of the insurance bond and will consequently have its lease pre-terminated.

Receivables also due from KTL Offshore 

  • Also disclosed in the latest results, S$2.7m in receivables or approx. seven months of rent were due from KTL Offshore (KTL) as of end Sept.
  • Soilbuild REIT’s trustee has since negotiated a top up of the first insurance guarantee from S$3.8m to S$5.3m and the delivery of a second insurance guarantee of S$1.5m for the three-year period following KTL’s scheduled lease expiry in Aug 2021, no later than 30 days before the expiry. The first insurance guarantee has already been topped up – we estimate this covers KTL’s rent fully until and including Apr 2018. We assume no pre-termination of the KTL lease for now, subject to further updates.

Trading at FY17F yield of 8.1%, FY18F yield of 7.4% 

  • FY18 continues to look to be a challenging year, with the management still guiding for negative rental reversions of a similar magnitude to that seen YTD. Nonetheless, it appears that the rental reversions have been getting less negative (-4.0% rental reversion for 3Q17 vs. -7.8% for 9M17).
  • We also are encouraged by the higher occupancies clocked at West Park BizCentral (95.0% vs. 91.2% as at end-Jun) and 72 Loyang Way (27.0% vs. 22.8% previously). 
  • After minor adjustments, our fair value remains at S$0.66. Maintain HOLD.

Deborah Ong OCBC Investment | 2017-10-16
OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 0.660 Same 0.660