Soilbuild Business Space REIT's Yield Compressed By Negative Reversion & Finance Costs



Key Highlights:

  • Soilbuild Business Space REIT's (SGX: S7P) 3Q19 distribution per unit (DPU) dropped 26.3% to 0.918¢

  • The recent acquisition in Australia has increased its portfolio size by 10%



1. Declining dividend

Net property income went up 4.5% to $17m, mainly on the conversion of Solaris to a multi-tenanted property and increased contributions from newly acquired assets in 2018. Despite higher net property income, the DPU tumbled by 26.3% due to three reasons:

  1. The recent preferential offer has enlarged the unit base by 19%, which dilute the DPU

  2. Excluding the enlarged unit base, 3Q19 DPU would have declined 12.9% as well due to higher finance cost

  3. Distribution of $1m to perpetual holders

The REIT is currently trading at 6.9% yield.



2. Declining occupancy rate with negative rental reversion


Portfolio occupancy dropped to 88.4%. During the quarter, the new and renewal of leases of Soilbuild Business Space REIT suffer a negative rental reversion of 1% (last quarter was -3%).


Overall industrial rents in Singapore was flat, the gains in business park rentals were offset by factories and warehouses. Moving forward, business parks should be the key catalyst to drive the REIT's growth and support rents.



Summary


While the management aims to diversify its portfolio to Australia, which helps to enhance portfolio yield, the fundamentals of Soilbuild Business Space REIT is still not favourable at the moment.



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