• 2Q14 DPU above prospectus forecast
• Continued focus on lease management
• Financial position remains robust

2Q14 results within expectations

Soilbuild Business Space REIT (Soilbuild REIT) reported a firm set of 2Q14 results, with gross revenue of S$16.7m coming in 0.9% higher than its prospectus forecast and NPI of S$14.0m 3.4% above forecast. The positive topline performance was due to new revenue stream from Tellus Marine (acquisition completed in May), while NPI was boosted further by lower maintenance costs incurred for both Eightrium and Tuas Connection. Distributable income and DPU, on the other hand, stood at S$12.1m and 1.50 S cents, both at 1.3% ahead of the respective forecasts. Together with 1Q distribution, 1H14 DPU amounted to 3.062 S cents and formed 49.8% of our full-year DPU projection. This is in line with our expectations, as Tellus Marine will make fullquarter revenue contribution for the rest of year.

Outlook remains sanguine

We note that management remains confident in delivering its forecast distribution for FY14, notwithstanding the current challenges in the industrial market and upcoming supply in industrial space in the year ahead. To achieve this, Soilbuild REIT will continue to focus on early renewals or re-leasing of space that expires in 2H14. We understand that over 85% of all lease expiries due in 2014 has already been renewed, re-leased or pre-committed, which should provide a high degree of certainty to its income stream. For 2Q14, leasing activity appears healthy in our view, as leases secured/renewed all saw positive rental reversions ranging from 3.6% to 31.7%. Only the portfolio occupancy dipped slightly from 100% in 1Q to 98.5% due mainly to a non-renewing lease expiring in Tuas Connection.

Maintain BUY

As at 30 Jun, Soilbuild REIT’s aggregate leverage also remained robust at 30.3% (1Q: 29.1%), providing it good debt headroom for future acquisitions. All-in interest costs dropped slightly from 3.12% in 1Q to 3.08% as Soilbuild REIT drew down debt facility on floating rate to fund the acquisition of Tellus. Tellus Marine in 2Q. While its fixed interest rate exposure is reduced 5ppt to 95%, this is still higher than the sector average. We maintain BUY and S$0.88 fair value on Soilbuild REIT.

Source: OCBC Research - 30 Jul 2014