• 4Q15 DPU rose 1.8% YoY
• 96.8% occupancy rate
• FY16F distribution yield of 9.0%

4Q15 results within our expectations

Soilbuild Business Space REIT (Soilbuild REIT) reported its 4Q15 results which came in within our expectations. Gross revenue jumped 15.6% YoY to S$20.4m due largely to contribution from new acquisitions. NPI rose 17.1% to S$17.5m, while DPU grew at a more modest pace of 1.8% to 1.614 S cents as a result of higher finance expenses and a 14.9% increase in its unit base.

For FY15, Soilbuild REIT’s gross revenue grew 16.4% to S$79.3m, or 0.4% shy of our forecast. DPU of 6.487 S cents represented growth of 4.7%, and this constituted 101.3% of our FY15 projection. Meanwhile, Soilbuild REIT also announced that it has appointed Mr Roy Teo as its new CEO (effective 21 Jan 2016). Mr Teo was the COO of Soilbuild REIT and took over as Acting CEO when its previous CEO resigned from the post.

Negative rental reversions for renewal leases in 4Q15

Soilbuild REIT renewed seven leases amounting to 197,724 sqft of space in 4Q15. These were signed at a negative rental reversion of 6.6%, a reflection of the challenging leasing environment amid a subdued macroeconomic landscape and supply concerns. Nevertheless, for the full year, management renewed 568,671 sqft of space at a positive rental reversion of 2.5%.

In terms of occupancy, there was a slight decline from 98.7% in 3Q15 to 96.8% in 4Q15, due to higher vacancies at West Park BizCentral and Tuas Connection. For 2016, Soilbuild REIT initially had 14.9% of its leases (by NLA) expiring, but management has forward renewed 2.3% of this, leaving 12.6% for the remainder of the year.

Maintain BUY, albeit with a lower FV

We raise our cost of equity assumption from 8.0% to 8.6% to take into account the “risk-off” market conditions and sluggish outlook for Singapore’s manufacturing sector. Rolling forward our valuations, we derive a lower fair value estimate of S$0.85 (previously S$0.93). However, we maintain our BUY rating, given Soilbuild REIT’s compelling FY16 distribution yield of 9.0%.

Source: OCBC Research - 22 Jan 2016