• Results within expectations
• 4Q17 DPU dropped 11.9% YoY
• FV increases at S$0.68

FY17 DPU Drops 6.2% YoY

FY17 gross revenue increased 4.5% YoY to S$84.8m, or 99.3% of our full-year forecast, with NPI increasing 4.0% YoY to S$73.5m correspondingly. FY17 income available for distribution fell 0.5% YoY to S$60.0m, mainly due to property and lease management fees being paid in cash instead of units and higher finance expenses.

FY17 DPU dropped 6.2% YoY to 5.712 S cents or 99.8% of our full-year forecast, which we consider to be within expectations. 4Q17 NPI dropped 6.0% YoY to S$14.6m while 4Q17 DPU decreased 11.9% YoY to 1.383 S cents. NAV per unit came to S$0.64 as at end-2017.

Positive on Proposed KTL Offshore Divestment

When we published our last report, we noted that Soilbuild REIT had S$2.7m in receivables or approx. seven months of rent were due from KTL Offshore as of end-Sept. Since then, Soilbuild REIT has entered into an option agreement to divest the KTL Offshore property (located in Tuas Bay Drive) to a wholly-owned subsidiary of the sponsor for S$55.0m in cash.

As at 28 Dec 2017, Soilbuild REIT’s trade receivable due from KTL Offshore comprised of six months of rent. The management intends to hold an EGM to seek unitholder approval on the proposed divestment in 1Q18. We believe the divestment will help Soilbuild REIT to better allocate capital and minimize its exposure to credit risk from KTL Offshore.

Trading at FY18F Yield of 7.3%

On the NK Ingredients issue, the Singapore High Court has granted a temporary moratorium on Soilbuild REIT’s proceedings to take possession of the asset following an agreement between Soilbuild REIT and the tenant. The moratorium is subject to certain conditions including timely payment of rent for the month of January and a top-up of the security deposit.

We adjust for the KTL Offshore disposal (which we assume to complete end-1Q18) and lower the cost of equity from 9.3% to 8.7% to account for the improved credit risk profile of the remaining portfolio. After incorporating FY17 figures, our fair value increases from S$0.66 to S$0.68. Against yesterday’s closing price of S$0.705, Soilbuild REIT is trading at a FY18F yield of 7.3%. Maintain HOLD.

Source: OCBC Research - 18 Jan 2018