• 2Q15 DPU grew 7.7% YoY
• 99.8% occupancy rate
• FY15F distribution yield of 7.5%

2Q15 results within our expectations

Soilbuild Business Space REIT (Soilbuild REIT) reported 2Q15 results which came in within our expectations. Gross revenue jumped 17.2% YoY to S$19.6m, underpinned by additional rental revenue from three new properties acquired in 4Q14 and 2Q15. DPU grew at a slower pace of 7.7% to 1.615 S cents (advanced distribution of 0.628 S cents already paid out) due largely to an enlarged unit base from a private placement exercise carried out in May this year. For 1H15, gross revenue rose 13.9% to S$38.2m and formed 50.9% of our FY15 forecast. DPU of 3.248 S cents represented a growth of 6.1% and constituted 50.2% of our full-year projection.

Occupancy still healthy at 99.8%

Soilbuild REIT’s occupancy rate came down slightly from 100% to 99.8%, but still a healthy level, in our view. Rental reversions of 5% and 1.6% for renewal leases and new leases were achieved, respectively. 11.8% of Soilbuild REIT’s NLA is up for renewal for the remainder of 2015, and we expect management to continue its proactive approach in negotiations with existing and prospective new tenants. In terms of capital management, Soilbuild REIT has fixed 97.9% of its interest bearing borrowings (as at 30 Jun 2015), an increase from a hedge ratio of 81.9% as at end 1Q15, thus mitigating its interest rate risk. Its average all-in borrowing cost inched up from 3.28% to 3.49% due to more hedges put in place and a maiden MTN issuance.

Reiterate BUY

We maintain our BUY rating and S$0.93 fair value estimate on Soilbuild REIT. Soilbuild REIT continues to be our preferred pick within the industrial REITs sub-sector, given its attractive FY15F distribution yield of 7.5% and exposure to the business park segment, which is the bright spot within the industrial space.

Source: OCBC Research - 15 Jul 2015