KGI Securities' Joel Ng is maintaining his ‘neutral’ stance and target price of 48 cents on SoilBuild Business Space REIT (SBREIT).
“Since our last report in May 2020, SBREIT’s unit price has recovered to its pre-Covid levels of 50 cents, and we think that upside potential is limited from here onwards as it has likely priced in a potential M&A,” explains Ng in his Oct 20 note.
In its recent results for 3QFY2020 ended Sep 30, SBREIT demonstrated – what Ng calls – a “commendable performance”.
This is as its distribution to unitholders surged 20.8% year-on-year to $14 million, following an 8% year-on-year increase in its gross revenue to $22.9 million. Of this, $3.1 million came from collections from the REIT’s facility at 25 Grenfell Street in Adelaide, Australia.
See: Soilbuild REIT 3QFY2020 DPU up 19.8% y-o-y to 1.10 cents
This contribution helped offset the lower rents from SBREIT’s facilities at Tuas Connection (-$0.5 million) and 72 Loyang Way (-$0.2 million)
Ng also points out to a 1.3% positive rental reversion to SBREIT’s new leases as well as a 1.2% increase in its lease renewals.
The “better-than-expected” take up for the REIT’s properties is seen in a 3.4% quarter-on-quarter increase in its overall portfolio occupancy to 92.9%.
SBREIT’s portfolio comprises properties used for manufacturing, engineering, logistics, warehousing, electronics, marine oil & gas, research and development and knowledge-based activities.
Of these 11 properties – comprising two business parks and nine industrial sites are in Singapore, while another three are in Australia.
Collectively, these facilities have a gross floor area of 600,378 square feet.
Looking ahead, Ng believes that demand for industrial assets may diverge as the impact of the Covid-19 pandemic filters through the economy.
“In addition to warehouse and logistics assets, we believe that business parks have the most potential to outperform as the economy recovers post-COVID-19,” notes Ng.
He believes SBREIT’s performance will be stronger come 2022, when its redevelopment works finish at 2 Pioneer Sector 1.
The works – if done on a 1.0 plot ratio is expected to cost some $82 million, while the cost edges up to $91 million if done on a plot ratio of 1.32.
As at 3Q2020, this asset accounted for 4% of SBREIT’s portfolio and should provide a conservative 4 – 5% increase in its Net Property Income (NPI) upon completion, says Ng.
Still, he expresses caution on the REIT’s leverage ratio.
“While SBREIT’s current 37% gearing is still a conservative level away from the Monetary Authority of Singapore’s new 50% limit, we note that the its gearing is expected to increase from a double hit of falling property prices and higher debt due to the redevelopment of 2 Pioneer Sector 1”.
Units in SBREIT were flat at 49 cents as at 2.26.