• Portfolio to stay resilient
• Exposure to positive industry segment
• Financial position remains sturdy

Unlikely any drastic impact from Barclays’ exit

Soilbuild Business Space REIT’s (Soilbuild REIT) recent 4Q13 results have beaten both ours and its prospectus forecasts. In the year ahead, we are positive that Soilbuild REIT’s performance will remain resilient, given its young portfolio age and strong specifications. While Barclays Bank has announced in Feb its intention to vacate Soilbuild REIT’s Eightrium @ Changi Business Park, we believe a replacement may have already been secured, based on our channel checks. Barclays Bank currently contributes 2.5% of the group’s gross rental income, still manageable in our view. Hence, apart from a temporary loss in income during the fitting-out period (possibly around two months), we do not expect the exit to jeopardize its financial performance

Industry outlook looks optimistic

Looking forward, we believe Soilbuild REIT may continue to benefit from the bright spot of the otherwise lackluster industrial market, thanks to its significant exposure to the business park space (40.3% of 4Q13 NPI). According to CBRE, outlook for the business and science park segment remains optimistic in 2014, with demand expected to be supported by better macroeconomic fundamentals and continued expansion of office occupiers in the decentralized areas. We also note that a significant portion of the pipeline supply has been pre-committed (69% in 2014; 76% in 2015), and this should allow for healthy net absorption and sustained rental rates. As such, we expect Soilbuild REIT’s portfolio to continue to achieve positive rental reversions and maintain its occupancy at high levels (4Q13: 99.9%).

Maintain BUY

On the capital management front, management has also increased its interest rate hedge to shield off any volatility on its funding costs. At present, 100% of its interest rate exposure is fixed, as opposed to 75% seen a quarter ago. All-in interest rate, on the other hand, maintained stable at 3.12% (3Q13: 3.11%), while aggregate leverage held steady at 29.3% (3Q13: 29.4%). We maintain BUY and S$0.85 fair value on Soilbuild REIT.

Source: OCBC Research - 7 Mar 2014