Soilbuild Business Space REIT:
STI : 3,100.24
Price Target : 12-Month S$ 0.87
Beating forecasts yet again
•4Q13 DPU of 1.5Scts beats forecast by 3.4%
•Growth momentum to continue into 2014
•Maintain BUY, TP S$0.87
4Q13 exceeds IPO forecast. Soilbuild Business Space REIT’s (“SBREIT”) first full-quarter results was ahead of its prospectus forecast, but was in line with our expectations. Gross revenue and NPI were 0.9% and 2.1% higher at S$16.3m and S$13.7m respectively. The stronger performance was attributable to positive reversions on renewals achieved last quarter, as well as property expenses and interest cost savings. Portfolio occupancy increased to 99.9%, supported by achieved rental reversions of 7.8%. This translated into a distributable income of S$12m (+3.5% vs forecasts) and DPU of 1.51Scts (+3.4%).
Organic growth. Looking ahead, growth in FY14 will be driven by organic rental improvements. With 17% of NLA to be renewed in 2014, we expect reversions to remain positive, given that the passing rents of expiring leases are c.10% below current market levels. The Manager is actively engaging with tenants early regarding renewals, and its focus will be on retaining the existing tenant base, given competition from new completing industrial supply.
100% borrowings hedged into fixed rate debt. The Manager has hedged 100% of borrowings into fixed-rate debt and we view this positively, given current uncertainty about interest rates as a result of QE tapering. With the next tranche of debt due to expire only in 2015, there is minimal refinancing risk in the next year. Gearing of 29.3% is below management’s long-term target of c.35%, which gives SBREIT S$75m of headroom to acquire industrial properties. Management is looking at opportunities from both 3rd parities and from its Sponsor on that front but remains selective in view of the sellers’ high asking prices. We have not factored in any acquisitions in our forecasts.
Maintain BUY, TP S$0.87. At current prices, SBREIT offers dividend yields of 7.9-8.5%, which is one of the highest among industrial S-REITs in our coverage. We believe that re-rating catalysts for SBREIT will hinge on: (i) Delivering better-than-expected reversions, and (ii) Accretive acquisitions. Maintain BUY.
Publish date: 24/01/14