SINGAPORE (April 13): OCBC Investment Research is keeping its “hold” call on Soilbuild Business Space REIT with an unchanged fair value estimate of 64 cents.
Soilbuild REIT on Wednesday announced a 4.4% decline in distribution per unit (DPU) to 1.489 cents for the first quarter ended March 31, despite a 6.6% increase in distributable income to $15.6 million.
“The dip was attributed to an enlarged unit base from its preferential offering exercise last year and management’s decision to pay the property management fee and receive its lease management fee in cash instead of units,” says OCBC lead analyst Andy Wong Teck Ching.
Wong notes that the 1Q17 DPU was within expectations, accounting for 26.0% of the research house’s full-year projection.
(See: Soilbuild REIT 1Q DPU falls 4.4% to 1.489 cents)
“There were some positive takeaways from Soilbuild REIT’s 1Q17 results,” Wong says.
Despite Soilbuild REIT’s 72 Loyang Way property currently only 9.9% occupied due to the termination of the lease agreement with Technics Offshore Engineering in Dec 2016, portfolio occupancy rose to 91.8%, from 89.6% as at end-FY16.
According to Wong, Soilbuild REIT has obtained approval from JTC to lease out up to 30% of the property’s gross floor area to non-oil and gas related tenants, and has managed to secure tenancies from the Construction and Precision Engineering trade sectors.
However, he adds that “uncertainties remain”.
A big question mark hangs over how quickly Soilbuild REIT will be able to find a new anchor tenant for 72 Loyang Way.
(See also: Soilbuild REIT sues Technics Oil & Gas over default on rent payment)
In addition, Wong opines that rental reversions are likely to remain soft even though the leasing environment has improved.
“Rental reversions for the quarter came in mixed, with positive rental uplifts of 3.6% for renewal leases, but forward renewal leases clocked in negative rental reversions of 6.0%,” he says.
As at 3.17pm, units of Soilbuild REIT are trading half a cent lower at 68 cents.
