• 3Q15 DPU rose 5.1% YoY
• 98.7% occupancy rate
• FY15F distribution yield of 7.8%

3Q15 results within our expectations

Soilbuild Business Space REIT (Soilbuild REIT) reported an in-line set of 3Q15 results, with gross revenue and DPU growing 22.4% and 5.1% YoY to S$20.7m and 1.625 S cents, respectively. This was driven largely by contribution from three properties (KTL Offshore, Speedy-Tech and Technics) which were acquired between Oct 2014 and May 2015.

NPI jumped 25.3% YoY to S$17.8m, resulting in a 2.0 ppt expansion in its NPI margin to 85.9%. We note that this was the fourth consecutive quarter in which Soilbuild REIT increased its NPI margin on a QoQ basis. For 9M15, gross revenue accelerated 16.7% to S$58.9m, while DPU increased 5.8% to 4.873 S cents. These constituted 73.9% and 75.9% of our FY15 forecasts, respectively.

Positive rental reversions

Soilbuild REIT’s occupancy rate came down slightly from 99.8% to 98.7%, but this had already been flagged out by management as a potential issue at the start of the year. Positive rental reversions of 4.5% (200,539 sqft of space) and 1.4% (56,533 sqft of space) were secured for renewal leases and new leases, respectively, in 3Q15. In terms of capital management, Soilbuild REIT has fixed 97.9% of its interest bearing borrowings (as at 30 Sep 2015) for 2.1 years. Its weighted average all-in cost of debt declined from 3.49% to 3.20%.

Maintain BUY

Based on advance estimates released yesterday, Singapore’s economy expanded by 1.4% YoY in 3Q15, but this was a moderation from the 2.0% growth achieved in 2Q15. The manufacturing sector remained sluggish, contracting by 6% YoY, with the drag coming largely from the electronics, biomedical manufacturing and transport engineering clusters.

Despite this soft outlook, we believe Soilbuild REIT has managed to stay resilient, which we attribute to management’s proactive approach and asset quality. Reiterate our BUY rating and S$0.93 fair value estimate on Soilbuild REIT. The stock offers an attractive FY15F distribution yield of 7.8%. Key risks to our projections include renewal risks from 8.5% of its NLA which is expiring for the remainder of the year.

Source: OCBC Research - 15 Oct 2015