Soilbuild REIT - OCBC Investment 2018-01-18: Expected Set Of Results

Soilbuild REIT - OCBC Investment 2018-01-18: Expected Set Of Results SOILBUILD BUSINESS SPACE REIT SV3U.SI

Soilbuild REIT - Expected Set Of Results

  • Results within expectations.
  • 4Q17 DPU dropped 11.9% y-o-y.
  • Fair Value increases at S$0.68.

FY17 DPU drops 6.2% y-o-y 

  • Soilbuild REIT's FY17 gross revenue increased 4.5% y-o-y to S$84.8m, or 99.3% of our full-year forecast, with NPI increasing 4.0% y-o-y to S$73.5m correspondingly. 
  • FY17 income available for distribution fell 0.5% y-o-y to S$60.0m, mainly due to property and lease management fees being paid in cash instead of units and higher finance expenses. 
  • FY17 DPU dropped 6.2% y-o-y to 5.712 S cents or 99.8% of our full-year forecast, which we consider to be within expectations. 
  • 4Q17 NPI dropped 6.0% y-o-y to S$14.6m while 4Q17 DPU decreased 11.9% y-o-y to 1.383 S cents. 
  • NAV per unit came to S$0.64 as at end-2017.

Positive on proposed KTL Offshore divestment 

  • When we published our last report (see Soilbuild REIT - Trading At 7.4% FY18F Yield), we noted that Soilbuild REIT had S$2.7m in receivables or approx. seven months of rent were due from KTL Offshore as of end-Sept. Since then, Soilbuild REIT has entered into an option agreement to divest the KTL Offshore property (located in Tuas Bay Drive) to a wholly-owned subsidiary of the sponsor for S$55.0m in cash. 
  • As at 28 Dec 2017, Soilbuild REIT’s trade receivable due from KTL Offshore comprised of six months of rent. 
  • The management intends to hold an EGM to seek unitholder approval on the proposed divestment in 1Q18. We believe the divestment will help Soilbuild REIT to better allocate capital and minimize its exposure to credit risk from KTL Offshore.

Trading at FY18F yield of 7.3% 

  • On the NK Ingredients issue, the Singapore High Court has granted a temporary moratorium on Soilbuild REIT’s proceedings to take possession of the asset following an agreement between Soilbuild REIT and the tenant. The moratorium is subject to certain conditions including timely payment of rent for the month of January and a top-up of the security deposit. 
  • We adjust for the KTL Offshore disposal (which we assume to complete end-1Q18) and lower the cost of equity from 9.3% to 8.7% to account for the improved credit risk profile of the remaining portfolio. 
  • After incorporating FY17 figures, our fair value increases from S$0.66 to S$0.68. Against yesterday’s closing price of S$0.705, Soilbuild REIT is trading at a FY18F yield of 7.3%. 
  • Maintain HOLD.

Deborah Ong OCBC Investment | http://www.ocbcresearch.com/ 2018-01-18
OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 0.68 Up 0.660