Upside potential limited SoilBuild Business Space REIT

Price target: KGI Securities “neutral” 48 cents

KGI Securities’ Joel Ng is maintaining his “neutral’’ call and 48 cents target price on SoilBuild Business Space REIT (SBREIT).

“Since our last report in May, 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,” says Ng.

For 3QFY2020, SBREIT grew distribution to unitholders by 20.8% y-o-y to $14 million.

Rental growth in Australia helped offset lower rents collected in Singapore. Overall portfolio occupancy increased 3.4% q-o-q to 92.9% and there was a 1.3% positive rental reversion to SBREIT’s new leases as well as a 1.2% increase in its lease renewals.

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, who believes SBREIT’s performance will be stronger come 2022, when the redevelopment works at 2 Pioneer Sector 1 are completed.

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”. —Amala Balakrishner