SINGAPORE (Jan 23): Soilbuild Business Space REIT (Soilbuild REIT) on Monday announced that its 4Q18 DPU has increased by 4.9% y-o-y to 1.451 cents, bringing FY18 DPU to 5.284 cents, 7.5% lower than a year ago.
See: Soildbuild REIT posts 4.9% increase in 4Q DPU to 1.451 cents
Following the results announcement, DBS Group Research is reiterating its “buy” recommendation on Soilbuild REIT with a target price of 65 cents, as the REIT’s enlarged vehicle offers stability amid the bottoming out of industrial rents.
In a Wednesday report, analyst Carmen Tay says, “As industrial rents continue to bottom out, we believe the timely expansion into Australia and positive contributions from crown jewel Solaris will help infuse stability.”
This may revive investor interest in Soilbuild REIT as DPU outlook reverts to positive trajectory in FY20F, after a three-year hiatus.
Although the REIT’s underlying 4Q results remained weak, the analysts believe that they have been largely priced in, as the REIT’s yields are among the highest compared to its peers.
In addition, contribution from Soilbuild REIT’s newly acquired Australian assets, as well as positive reversions for Solaris, should help augment the resilience and even growth of DPUs hereon.
On the other hand, Jefferies is keeping its “hold” call on Soilbuild REIT with a target price of 62 cents.
In a Tuesday report, analyst Krishna Guha says, “In our view, the results reflect an unchanged script, as industrial sub-sector continues to feel the impact of declining demand for general manufacturing although supply pressures are considerably less. As such, it is a demand issue, especially for multi-tenanted flatted factories and low spec warehouses.”
The REIT’s portfolio occupancy increased to 89.5% at the end of 2018, up from 87.2% in the prior quarter. But the REIT continued to display negative portfolio reversion of -12.6% for the quarter and -8.6% for the whole year.
The REIT’s manager reckons that negative reversion will persist for West Park Biz Central, as the micro-market has higher vacancy due to vacant investor-owned strata space. Further, tenants who are mainly stocking inventory are moving to warehouses availing of sub-dollar rents. It is currently looking for MNC-type tenants to back-fill the space.
Meanwhile, rents are likely to stabilise at Tuas Connection due to better demand.
However, Soilbuild REIT may have to deal with potential tenant defaults, especially in the O&G sector.
Guha believes that business parks, high spec warehouses and BTS single user spaces are seeing better demand with rents starting to bottom out.
As at 1.10pm, units in Soilbuild REIT are trading at 62 cents or 13.6 times FY19 earnings with a distribution yield of 8.4%.
