• 1Q14 DPU up 6.1% YoY
• Portfolio assets fully occupied
• Proposed acquisition to augment earnings

1Q14 results above prospectus forecasts

Soilbuild Business Space REIT (Soilbuild REIT) delivered a strong set of 1Q14 results, with NPI of S$14.2m and distributable income of S$12.6m coming in 5.3% and 6.1% higher than its respective prospectus forecasts. The better performance was mainly attributable to higher revenue, a oneoff pre-termination income of S$0.4m from a tenant, and lower property and finance expenses. Similarly, DPU of 1.562 S cents was 6.1% higher than its forecast. Excluding the one-off item, we note that DPU would have been circa 1.51 S cents, largely within market expectations (25.2% of consensus and our FY14F DPU).

Further improvements in operating metrics

Soilbuild REIT‟s portfolio occupancy reached 100% (4Q13: 99.9%), following the expansion of space by one tenant and new take up by another tenant at Eightrium during the quarter. Consistent with our channel checks, the 29,041 sqft space at Eightrium that was vacated by Barclays upon its lease expiry in Mar has been taken up by DBS Bank (two year lease tenure signed at market rates). In our view, this is a positive development given that the rental market at Changi Business Park has become increasingly competitive. For the three lease expires in 1Q, we understand that an average rental reversion of 6.6% was achieved. Notably, Soilbuild REIT has also forward-renewed five leases (2.8% of portfolio NLA) expiring in 1Q15 at rents 13.9% higher than preceding contracted rates.

Maintain BUY

Looking ahead, management believes that it is well placed to deliver on the forecasts set out in its prospectus, underpinned by its continued focus on early renewals for its lease expiries and cost containment. As announced in Mar, Soilbuild REIT has entered into an agreement to acquire 39 Senoko Way, an industrial property in Woodlands. With the deal expected to be yield-accretive, we believe its earnings profile will be further enhanced upon its expected completion in 2Q. We maintain BUY on Soilbuild REIT, but raise our fair value marginally higher to S$0.88 from S$0.87 after incorporating the positive 1Q showing.

Source: OCBC Research - 2 May 2014