SINGAPORE (Mar 29): OCBC is upgrading Soilbuild Business Space REIT to "buy" from "hold" now that there is greater clarity on the NK Ingredients issue.
To recap, Singapore High Court granted a temporary moratorium on Soilbuild REIT's proceedings to take possession of the asset following an agreement between Soilbuild REIT and tenant NK Ingredients.
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.
On Wednesday, the manager of Soilbuild REIT announced it has received the amounts billed to NK Ingredients between Jan 11 to Mar 26.
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 $5.1 million, which translates into around 12 months worth of rent for the asset.
In a Thursday report, lead analyst Deborah Ong says OCBC had originally projected Soilbuild REIT would effectively lose about 6 months worth of rent for the NK asset in FY18.
With the top-up and the payment, Ong has updated her assumptions and expect only about one month of lost income from the NK asset in FY18.
"Our cost of equity decreases from 8.7% to 8.5%," says Ong, "After adjustments, our fair value increases from $0.68 to $0.70."
Although the operating environment in the industrial space is expected to remain challenging for much of this year, Ong finds Soilbuild REIT’s unit price still attractive.
As at 2.11pm, units in Soilbuild REIT are trading at 65 cents, giving an FY18 yield of 7.9%.
