This article was recently published on www.nracapital.com,and is republished with permission.
Dispute with JTC
SBSR announced on 16 January 2015 that it has a rental dispute with JTC on Solaris which comprises about 30% of its total portfolio value.
The dispute could impact the valuation of Solaris from $300mn to S$275mn and lower portfolio NAV from S$0.80 to S$0.77. There is no impact on DPU until 2018. SBSR believes it has a strong case and is defending its position vigorously.
I still like SBSR which has a running DPU yield of about 8%. The JTC has announced some weakness in industrial capital values and rentals but this doesn’t seem to affect SBSR which is in business parks. Based on guidance, we can expect SBSR to at least be able to maintain in FY2014 DPU into 2015.
An 8% DPU yield is to me very attractive and should be sustainable over the next two years. The dispute with JTC may impact its NAV and gearing but should not impact DPU. SBSR remains an attractive yield play.
Management have clarified some of by questions on costs and revenue - you can find these in my Yield Portfolio commentary on the stock.