Soilbuild Business REIT

Soilbuild Business REIT: 3Q15 beats expectations with contributions from new properties

Soilbuild REIT's 3Q15 results beat street expectations as DPU climbed 5.1% y/y to 1.625¢ on a 20.8% jump in distributable income to $13.1m.

The performance was underpinned by gross revenue and NPI of $20.7m (+22.4%) and $17.8m (+25.3%) as new contributions from three recent acquisitions helped to boost overall performance. These were:

1) KTL Offshore - NLA: 208,057sf, 100% occupancy, acquired for $55.7m
2) Technics Offshore - NLA: 203,459sf, 100% occupancy, acquired for $98.1m
3) Speedy-Tech - NLA: 93,767sf, 100% occupancy, acquired for $24.4m

The industrial REIT also achieved positive rental reversions across all leases with new leases growing by 1.6% and renewals by 4.5%.

Portfolio occupancy dipped 1.2 ppt to 98.7% over its total net lettable area (NLA) of 3.5m sf, while weighted average lease to expiry lengthened to 4.8 years from 4.5 years in 2Q15.

In light of the sluggish manufacturing sector as well as huge industrial supply coming on stream during the rest of the year, the REIT could have its work cut out for it as it would have to renew about 8.5% of its portfolio (by NLA) before 2015 ends.

Aggregate leverage improved 0.2 ppt q/q to 36.1% with average interest cost of 3.2% after it managed to secure refinancing for its $185m club loan facility. With 97.9% of its interest rate exposure fixed for the next 2.1 years, borrowing costs will be insulated against potential interest rate hikes.

No major refinancing will be required until FY18. Based on its 40% target leverage level, the REIT has significant headroom of about $78m that could be used to fuel future acquisitions.

At $0.835, Soilbuild REIT trades at 1.04 x P/B and offers an annualised 9M15 yield of 8.1%. The street is fairly bullish on the counter with 6 Buy and 1 Hold ratings and a consensus TP of $0.91.