Wednesday, November 6, 2013

Soilbuild REIT: Strong maiden results (OCBC)

Soilbuild REIT:
Fair value S$0.82
add: 12m dividend forecast S$0.057
versus: Current price S$0.77

Strong maiden results
• 3Q13 DPU exceeds forecasts
• Improved operational performance
• Ample resources for future growth

Soilbuild Business Space REIT (Soilbuild REIT) reported a stronger-than-expected set of 3Q13 results. As at 30 Sep, portfolio occupancy inched up to 99.8% from 99.7% (at listing date) due to expansion by an exiting tenant at Eightrium.
We also understand that Soilbuild REIT has achieved 100% retention rate for its leases since listing, and has fully addressed its lease expiries for the year by renewing three leases at rental rates 7.9% higher than the preceding average passing rents. This reflects the keen leasing demand at Soilbuild REIT’s portfolio assets, in our view. While we maintain our view that the industrial market may potentially face downward pressures in rental and occupancy rates going forward, we note that only 17.3% of Soilbuild REIT’s portfolio NLA is due for renewal in 2014. As such, we believe its financial performance is likely to stay firm. Maintain BUY with unchanged S$0.82 fair value.

3Q13 scorecard above view
Soilbuild Business Space REIT (Soilbuild REIT) reported a stronger-than-expected set of 3Q13 (period from listing date on 16 Aug to 30 Sep) results. NPI came in at S$6.9m, 2.0% higher than its prospectus forecast of S$6.8m due to higher income contribution and lower property expenses from Eightrium and Tuas Connection. Distributable income of S$6.1m was also 3.1% above the prospectus forecasts due to higher net income and lower finance expenses. As a result, DPU stood at 0.76 S cents, 3.0% above its prospectus forecast. This also exceeds our FY13F DPU of 0.72 S cents, on a pro-rated basis.

Improvements on all fronts
We understand that Soilbuild REIT has achieved 100% retention rate for its leases since listing, and has fully addressed its lease expiries for the year by renewing three leases (2.2% of portfolio NLA) at rental rates 7.9% higher than the preceding average passing rents. As at 30 Sep, portfolio occupancy inched up to 99.8% from 99.7% (at listing date) due to expansion by an exiting tenant at Eightrium. This reflects the keen leasing demand at Soilbuild REIT’s portfolio assets, in our view. A look at URA REALIS latest 3Q13 statistics also appear to paint a positive picture, with the industrial property rental index and occupancy rates registering sequential improvements in most submarkets, after seeing pockets of weakness in 2Q. Going forward, however, we maintain our view that the industrial market may potentially face downward pressures in rental and occupancy rates with the influx of industrial space supply. Nevertheless, given that only 17.3% of Soilbuild REIT’s portfolio NLA is due for renewal in 2014, we believe its financial performance is likely to stay firm.

Solid financial position
Soilbuild REIT’s aggregate leverage and all-in interest costs are currently robust at 29.4% and 3.11% respectively. ~75.0% of its debts is also hedged into fixed rates. This provides Soilbuild REIT with ample firepower for future acquisitions, while limiting its exposure to interest rate volatility. We are raising our FY13F DPU by 2.8% to account for the better results. Maintain BUY with unchanged S$0.82 fair value.


Source/Extract/Excerpts/来源/转贴/摘录: OCBC-Research,
Publish date: 04/11/13

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