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DBS Vickers is advising investors to buy shares in Soilbuild Business Space REIT, and raised its target price to $0.65 per unit, suggesting total returns of about 21 percent, reported SG investors.
Although Soilbuild’s revenue declined by 9.5 percent year-on-year to $58 million and net property income (NPI) dropped 11.3 percent to $49.4 million for the first nine months of 2018, the lacklustre results were already expected and was mostly priced by the market.
However, revenue is expected to recover and increase once the contributions from Soilbuild’s properties in Australia start coming in.
“We predict that the newly acquired Australian properties will help boost NPI by $7.9 million per annum contributing c.10.5 percent and c.0.6 percent in FY2019 NPI and distribution per unit (DPU) respectively. Coupled with positive reversions at Solaris, the trust’s single largest asset by gross rental income, should help mitigate the impact of still-negative reversions for industrial leases and anchor yields,” said DBS analysts Carmen Tay and Derek Tan.
“Notwithstanding the slight dip in portfolio occupancy from 87.6 percent in Q2 2018 to 87.2 percent in Q3 2018, we believe that the worst may soon be over for the trust as its operating performance steadies sequentially – NPI flattened quarter-on-quarter after posting declines over the last few quarters, and negative reversionary trends moderate.”
Aside from that, Soilbuild has inked 665,000 sq ft of leases over the first three quarters, of which 110,000 sq ft were signed in Q3 alone.
Rental reversions on lease renewals/future renewals also rebounded from -9.7 percent in Q2 2018 to 3.6 percent during the third quarter. On a combined basis, the contraction in gross rents eased to 5.8 percent in the first nine months of 2018 compared to 9.8 percent during the first half of the year.
Furthermore, the analysts pointed out that Soilbuild currently offers a potential yield of 8.9 percent to 9.3 percent over FY2018 to FY2020, which translates to a statistical deviation of positive one over its historical range.
Romesh Navaratnarajah, Senior Editor at PropertyGuru, edited this story. To contact him about this or other stories, email romesh@propertyguru.com.sg
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