• More robust portfolio in 2018
• 1Q results within expectation
• FV increases to S$0.71

No Big Surprises in 1Q

Soilbuild Business Space REIT’s (Soilbuild REIT) 1Q18 results were within expectations. Gross revenue dropped 11.5% YoY to S$19.4m or 24.4% of our initial full-year forecast, mainly due to lower contributions from 72 Loyang Way, West Park BizCentral, Eightrium, as well as KTL Offshore which was divested in Feb 2018. 1Q18 DPU dropped 11.1% YoY to 1.324 S cents or 25.9% of our initial full-year forecast.

Higher Vacancies at West Park and Eightrium

Portfolio occupancy fell from 92.7% in 4Q17 to 87.5% in 1Q18, due to some non-renewals of expiring leases at West Park BizCentral and Eightrium. Tenant retention is expected to improve for West Park BizCentral in 2Q, while leasing activities at Eightrium will likely be hindered until the asset enhancement initiatives there complete in late May/early June.

In other updates, the REIT manager announced that it has terminated Tellus Marine’s lease and taken possession of 39 Senoko Way. 39 Senoko Way’s occupancy stood at 34.2% as at 31 March 2018.

Given the S$1.2m remaining on the security deposit, which is equivalent to ~11 months of rent, we expect no change to the NPI contribution from the asset in FY18. For perspective, Tellus Marine contributed 1.9% of FY17 gross revenue.

Trading at FY18F Yield of 7.7% as of 17 Apr Close

After adjustments, our fair value increases slightly from S$0.70 to S$0.71. We continue to expect the operating environment in the industrial space to remain challenging for much of this year. Yet, while bearing in mind this backdrop, we see upside to our fair value as of 17 Apr’s close.

We see the REIT as being in a stronger position post the KTL Offshore disposal as well as the latest update on the NK Ingredients issue. Recall that the REIT manager confirmed – at the end of March – the receipt of the amounts billed to NK Ingredients between 11 Jan 2018 to 26 Mar 2018 as well as the receipt of a top up of security deposit.

As of 17 Apr’s close of S$0.66, Soilbuild REIT is trading at a 7.7% FY18F yield. Maintain BUY

Source: OCBC Research - 18 Apr 2018