Soilbuild Business Space REIT (Soilbuild REIT) reported its 2Q16 results which met our expectations. Gross revenue was flat (-0.1% YoY) at S$19.6m but NPI grew 3.7% to S$17.3m due to a reduction in property tax expense for West Park BizCentral. DPU was lower by 3.1% on a YoY basis to 1.565 S cents as a result of an enlarged unit base. For 1HFY16, Soilbuild REIT’s gross revenue rose 3.9% to S$39.7m and accounted for 48.7% of our FY16 projection. DPU of 3.122 S cents represented a decline of 3.9% and formed 50.3% of our full-year forecast

During the quarter, Soilbuild REIT encountered negative rental reversions of 5.7% for its renewal leases, although the area renewed made up only ~1.2% of its overall portfolio NLA. Its occupancy stood at 92.0%, as at 30 Jun 2016, a dip of 2.8 ppt QoQ due to the challenging leasing environment.

Given this in-line set of results, we maintain our BUY rating and fair value estimate of S$0.76 on Soilbuild REIT. Based on our forecast, the stock is trading at FY16F distribution yield of 8.9%.

Source: OCBC Research - 14 Jul 2016