Wednesday, July 15, 2015

Soilbuild Business Space REIT kept at ‘buy’ with price target of 93 cents by OCBC on acquisition driven growth

OCBC Investment Research is keeping its “buy” call on Soilbuild Business Space REIT with a price target of 93 cents.

The research house observes that the REIT’s 2Q2015 results came in within its expectations.

Gross revenue jumped 17.2% y-o-y to $19.6 million, underpinned by additional rental revenue from three new properties acquired in 4Q2014 and 2Q2015.

Distribution per unit (DPU) grew at a slower pace of 7.7% to 1.615 cents due largely to an enlarged unit base from a private placement exercise carried out in May 2015.

For 1H2015, gross revenue rose 13.9% to $38.2 million and formed 50.9% of OCBC Investment Research’s FY2015 forecast.

DPU of 3.248 cents represented a growth of 6.1% and constituted 50.2% of the research house’s full-year projection.

While the REIT’s occupancy rate came down slightly from 100% to 99.8%, OCBC Investment Research notes that this is still a healthy level.

Rental reversions of 5% and 1.6% for renewal leases and new leases were achieved respectively.

Meanwhile, 11.8% of Soilbuild REIT’s net lettable area is up for renewal for the remainder of 2015.

“We expect management to continue its proactive approach in negotiations with existing and prospective new tenants,” says OCBC Investment Research.

In terms of capital management, the REIT has fixed 97.9% of its interest bearing borrowings as at June 30, an increase from a hedge ratio of 81.9% as at end 1Q2015, thus mitigating its interest rate risk.

Its average all-in borrowing cost inched up from 3.28% to 3.49% due to more hedges put in place and a maiden medium term note issuance.

“Soilbuild REIT continues to be our preferred pick within the industrial REITs sub-sector, given its attractive FY2015 distribution yield of 7.5% and exposure to the business park segment, which is the bright spot within the industrial space,” it adds.

Soilbuild REIT is trading 0.5 cent higher at 86.5 cents as at 10.41am.

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