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.
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.
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.