Soilbuild Business Space REIT - OCBC Investment 2018-03-29: Lifting The Overhang!

SOILBUILD BUSINESS SPACE REIT SV3U.SI

Soilbuild Business Space REIT - LIFTING THE OVERHANG!

Recall that the Singapore High Court has granted a temporary moratorium on Soilbuild Business Space REIT’s (Soilbuild REIT) proceedings to take possession of the asset following an agreement between Soilbuild REIT and the tenant. This moratorium is subject to certain conditions including timely payment of rent for the month of January and a top-up of the security deposit.
Yesterday, the manager of Soilbuild REIT announced the receipt of the amounts billed to NK Ingredients between 11 Jan 2018 to 26 Mar 2018. The manager has also received a top up of security deposit and is currently holding half the original security deposit. The original security deposit amounted to S$5.1m, which translates into around 12 months worth of rent for the asset.

Based on assumptions we made of the probability of default and repossession, we projected that Soilbuild REIT would effectively lose around ~6 months worth of rent for the NK asset in FY18.
We have now updated our probability-based assumptions and expect only around 1 month of lost income from the NK asset in FY18. Against 28 Mar’s close, Soilbuild REIT is trading at a FY18F yield of 7.9%.

With the greater certainty we now have on the NK Ingredients issue and the divestment of KTL Offshore last month, we are more confident of Soilbuild REIT’s prospects than we were before.
Our cost of equity decreases from 8.7% to 8.5%. After adjustments, our fair value increases from S$0.68 to S$0.70. We do expect the operating environment in the industrial space is expected to remain challenging for much of this year, but even with this in mind, we find Soilbuild REIT’s unit price as of 28 Mar attractive.
We upgrade Soilbuild REIT from Hold to BUY.

Deborah Ong OCBC Investment | http://www.iocbc.com/ 2018-03-29

OCBC Investment SGX Stock Analyst Report BUY Upgrade HOLD 0.7 Up 0.680