• Portfolio occupancy remains high at 98.7% (2Q FY15: 99.8%).
• Renewals and new leases signed in 3Q FY15 represent 7.3% of portfolio NLA.
• Refinanced Club loan facility extending weighted debt maturity to 3.5 years; no refinancing until 2018.

What is the news?

Soilbuild Business Space REIT (SBREIT) announced its 3Q FY15 (Y/E Dec) results on 14 October after trading hours. We tuned in to the Analyst Briefing conference call earlier this morning. SBREIT will trade ex-dividend on 20 October.

Analyst Briefing Key Takeaways

A tale of two fortunes among tenants. Tenants who are faring better are those in Solaris, who are from the IT-sector of software development and games. While tenants from the oil & gas sector are downsizing and the logistics sector is weakening.

Any decline in rent will affect West Park BizCentral more than Tuas Connection. West Park BizCentral tenants are largely in logistics sector; warehouse rents are competitive and declining due to upcoming supply coming onto the market. Leases at Tuas Connection were signed in 2010 and 2011 and the passing rent is now still lower than market rent. There are already non-renewal notices from some tenants, so some downtime in 4Q FY15 and 1Q FY16 is possible.

Outline of near-term lease expiries. 8.5% of portfolio NLA is expiring in 4Q FY15, of which we estimate about half has already been renewed. The remaining un-renewed leases are mainly from Tuas Connection. 15.0% of portfolio NLA will be expiring in FY16. Expiries in 1H FY16 will come from Eightrium, Tuas Connection & West Park BizCentral, while 2H FY16 will have expiries from West Park BizCentral.

Acquisitions will still focus within Singapore for now. The Manager shared that the possibility of overseas acquisitions will not be excluded. However, acquisitions will still be within Singapore for the three years post-IPO until August 2016.

How do we view this?

What to look out for in 4Q15. Gross Revenue and DPU is expected to continue with y-oy growth, from acquisitions of KTL Offshore (31 Oct 2014), Speedy-Tech (23 Dec 2014) and Technics (27 May 2015).

Well-positioned for inorganic growth. SBREIT's gearing is currently at 36.1%, with a debt headroom of S$78 million based on a target leverage of 40% gearing. The Manager has a proven track record of growing returns to Unitholders through acquisitions.

An acquisition within the next two quarters will be required in order to maintain the momentum in DPU growth. SBREIT's track-record of DPU growth has been underpinned by acquisitions. There has been steady DPU growth since the maiden acquisition (Tellus Marine) in 1Q FY14 till the most recent acquisition in 2Q FY15 (Technics Offshore).

Key risk will be maintaining occupancy. The outlook for industrial space is challenging. The mitigating factor for SBREIT's portfolio is its relatively new properties.

Source: Phillip Securities Research - 16 Oct 2015