Soilbuild Business Space REIT Analysis @ 15 October 2020

 Basic Profile & Key Statistics

Soilbuild Business Space REIT (SBREIT) invests in business parks and industrial properties. SBREIT currently owning 13 properties in Singapore and Australia.

Quarter Performance Review

Gross revenue increased by 8% and NPI increased by 16.5% due to contribution from 25 Grenfell Street which was acquired in December 2019 and a 26% reduction in operating expenses mainly due to a reversal of S$1.5 million of allowance for doubtful receivables.

DPU increased by 47.7% QoQ and 19.8% YoY. There is no retention mentioned in this result announcement, thus I've assumed management released all distribution retained. From the footnote, 2Q FY2020 DPU would be 0.875 cents if without retention, which is equivalent to 0.13 cents DPU. If we minus off this in 3Q, the actual DPU would be 0.97 cents, which increased 5.7% YoY.

Lease Profile

Occupancy improved to 92.9%. WALE reduced to 3.2 years where the highest lease expiry of 21% falls in the year 2023. Weighted land lease expiry is short at 46.14 years.

Debt Profile

Gearing remain healthy at 36.8%. Cost of debt is high at 3.2% with low unsecured debt % of 59.4%.  Fixed rate debt % is moderate at 80.1%. Interest cover ratio improved to a high level of 4.4 times. WADE reduced to 1.6 years where the highest debt maturity of 40.6% (exclude perpetual securities) falls in the year 2022.

Diversification Profile

Top geographical, top property and top 10 tenants contribution are high at 80.2% ,30.4% and 42.5% respectively. Top tenant contribution is low at 9%. 

Key Financial Metrics

Property yield is slightly low at 5.3%. Management fee is competitive which translates into $10 distribution for every $ paid. Distribution on capital and distribution margin are moderate at 3.5% and 49.6% respectively. 

Trends

DPU, NAV per unit, interest cover ratio and distribution margin are on a downtrend while property yield is on a slight downtrend. However, this quarter has shows signs of improvement for these trends.

Relative Valuation

i) Average Dividend Yield  - Average yield at 8.26%, apply the past 4 quarters DPU of 3.653 cents will get S$ 0.44. 

ii) Average Price/NAV - Average value at 0.93, apply the latest NAV of S$ 0.59 will get S$ 0.55.

Author's Opinion

Favorable	Less Favorable
Diversified Sector	Short WALE
Well Spread Lease Expiry	Short Weighted Average Land Lease Expiry
High Interest Cover Ratio	High Cost of Debt
Low Top Tenant Contribution	Low Unsecured Debt %
Competitive Management Fee	Short WADE
	Concentrated Debt Maturity
	High Top Geographical Contribution
	High Top Property Contribution
	High Top 10 Tenants Contribution
	DPU Downtrend
	NAV per Unit Downtrend
	Interest Cover Ratio Downtrend
	Distribution Margin Downtrend

Overall, the fundamentals for SBREIT shows improvement in this quarter. Even if we take only 0.97 cents DPU (as explained above), this is considered highest after its preferential offer exercise in September 2019, albeit lower than Pro-Forma DPU of 1H 2.319 cents from 25 Grenfell Street proposed acquisition presentation. 

For the redevelopment of 2 Pioneer Sector 1, there is no further update provided. Based on the previous 1Q result presentation, gearing would be increased to more than 42%. Even after the divestment of 72 Loyang Way, its gearing would be increased to 40%. There is also no detailed update on the non-binding term sheet regarding a possible transaction involving Mr. Lim Chap Huat, Mr. Lim Han Feng, Mr. Lim Han Qin, and Mr. Lim Han Ren’s direct and indirect interests in SBREIT. Hopefully, the manager could provide more detail for both matters above soon.

For more information, you could refer to:

SREITs Dashboard - Detailed information on individual Singapore REIT

SREITs Data - Overview of Singapore REIT

REIT Analysis - List of previous REIT analysis posts

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REIT Investing Community - Facebook Group where members share and discuss REIT topic

*Disclaimer: Materials in this blog are based on my research and opinion which I don't guarantee the accuracy, completeness, and reliability. It should not be taken as financial advice or statement of fact. I shall not be held liable for errors, omissions as well as loss or damage as a result of the use of the material in this blog. Under no circumstances does the information presented on this blog represent a buy, sell, or hold recommendation on any security, please always do your own due diligence before any decision is made.