The positives
The negatives
Outlook
The outlook is negative. The manager expects negative reversions to continue into 1H 2018, stabilising only in 2H 2018. Barring any acquisitions to grow the portfolio, we expect FY18e gross revenue to be lower YoY, due to divestment of KTL Offshore. Current 40.6% gearing inhibits acquisitions, as it is close to the statutory limit of 45%. Divestment proceeds from KTL Offshore is likely to be used to pare down debt. There is an overhang arising from uncertainties on NK Ingredients. Despite NK Ingredients continuing to pose a default risk, our view is that retaining the tenant is the lesser of two evils; the other being to remove the tenant now and suffer an indeterminate period of vacancy.
Ceasing coverage
Our most recent rating from Nov 9, 2017 report, was “Reduce” with target price of $0.61. We are ceasing coverage on this counter due to reallocation of internal resources.
Ongoing developments
Relative valuation
SBREIT is overvalued relative to the peer average P/NAV multiple, and has a higher yield compared to the peer average. We believe the higher yield compared to peers is a reflection of the risk of the portfolio going forward.
Richard covers the Transport Sector and Industrial REITs. He graduated with a Master of Science in Applied Finance from the Singapore Management University. He holds the CFTe and FRM certifications and is a CFA charterholder.
He was ranked #2 Top Stock Picker (Asia) for Real Estate Investment Trusts in the 2018 Thomson Reuters Analyst Awards, and ranked #2 Top Stock Picker (Singapore) for Resources & Infrastructure in the 2016 Thomson Reuters Analyst Awards.