OCBC: Upside to Soilbuild REIT despite ‘challenging’ industrial-space outlook

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There’s upside to Soilbuild REIT despite a challenging operating environment and falling occupancy at some locations, OCBC said in a note on Wednesday.

Portfolio occupancy fell from 92.7 percent in the fourth quarter of last year to 87.5 percent in the first quarter of 2018, OCBC noted, citing some non-renewals of expiring leases at West Park BizCentral and Eightrium.

First-quarter gross revenue fell 11.5 percent on-year to S$19.4 million, or 24.4 percent of the full-year forecast, OCBC said, noting that was in line with expectations.

“We continue to expect the operating environment in the industrial space to remain challenging for much of this year,” it said, but added,”while bearing in mind this backdrop, we see upside to our fair value.”

It noted tenant retention at West Park BizCentral is expected to improve in the second quarter, although Eightrium would likely be hindered by asset enhancement works there, which were due to be completed in late May or early June.

The REIT manager also said that it terminated Tellus Marine’s lease and took possession of 39 Senoko Way, where the occupancy was at 34.2 percent at the end of March, OCBC noted. But it added, there was S$1.2 million remaining on the security deposit, equivalent to around 11 months of rent, so the asset’s net property income contribution wasn’t expected to be affected this year.

“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,” OCBC said, noting that the REIT manager confirmed it received amounts billed to NK Ingredients and a security deposit top-up.

OCBC kept a Buy call with a S$0.71 fair value, noting the unit is trading at 7.7 percent 2018 yield.

The unit ended Wednesday down 0.76 percent at S$0.66.