SINGAPORE (Apr 19): DBS Group Research is upgrading Soilbuild Business Space REIT (Soilbuild REIT) to a “buy” with a revised 12-month target price of 50 cents, from 55 cents previously.

In an April 17 report, analysts Dale Lai and Derek Tan attribute the more optimistic view to a 3.9% increase in rents for new leases signed in the quarter.

The target price represents an upside of some 28% to Soilbuild REIT’s last traded price of 39 cents.

"We are optimistic on Soilbuild REIT’s earnings outlook. The full year contribution from 25 Grenfell Street and redevelopment of 2 Pioneer Sector 1 should offer upside to earnings in the mid-term," Lai and Tan say. 

The recommendation came on the back of Soilbuild REIT’s released results on April 16.

Despite a drop in Soilbuild REIT’s distribution per unit (DPU) for 1QFY2020 ended March, the REIT completed more than 238,000 sqft of renewals and new leases for the quarter. Portfolio occupancy also rose marginally to 84.7% from 84% q-o-q.

The revised target price took into consideration potential “disruptions to operations due to the Covid-19 outbreak and circuit breaker measures”.

“We have also lowered our rental assumptions for leases to be renewed this year, and moderated occupancy rates at properties with leases expiring this year,” say the analysts.

Lai and Tan see value emerging from the stock, but warn that “prolonged disruptions to the industrial sector due to Covid-19 may lead to a larger-than-anticipated downside risk to rental rates and occupancies”.

Look out for “high leverage” that “will limit growth plans”, they add. “Gearing is currently above 38% and could be a hindrance to Soilbuild REIT’s plans for future acquisitions or AEI plans.”

Units in Soilbuild REIT closed 2 cents higher, or 5.4% up, at 39 cents on Friday.