Soilbuild REIT upgraded to Buy by DBS after Australia acquisitions

Australian notes and coins

DBS upgraded Soilbuild Business Space REIT to Buy from Hold, saying its Australian acquisitions will offer stability and growth.

“As industrial rents continue to bottom out, we believe the timely expansion into Australia and positive contributions from crown jewel Solaris will help anchor resilience and yields,” DBS said in a note on Friday. “This may help revive investor interest in SBREIT as distribution per unit (DPU) outlook reverts to positive trajectory after a three-year hiatus.”

Soilbuild REIT said in September it would make a maiden foray into Australia and acquire two properties for a total consideration, including other costs, of A$120.96 million.

Last week, the REIT reported third quarter net property income fell 8.8 percent on-year to S$16.22 million after the divestment of KTL Offshore and on lower contributions from West Park BizCentral and Eightrium.

“While third quarter of 2018 results remained weak, we believe that it has been largely priced in by the market. DPUs have also been under pressure over the last few years, but is set to change as contributions from SBREIT’s Australian assets kick in,” it said.

It estimated the Australian properties would help boos net property income by S$7.9 million a year, contributing around 10.5 percent of 2019 net property income and around 0.6 percent of DPU.

In addition, DBS pointed to the Solaris asset, saying that with the August expiry of the master lease, the asset is starting to contribute more meaningfully, with positive reversion of around 10 percent.

DBS estimated the unit is trading at “attractive” prospective yields of 8.9 percent to 9.3 percent over 2018-20.

It raised its target price to S$0.65 from S$0.62.

Soilbuild REIT ended up 1.71 percent at S$0.59 on Friday.

 

Get the Shenton Wire morning briefing in your inbox