Wednesday, 19 March 2014

Soilbuild Business Space REIT

OCBC on 18 Mar 2014

Soilbuild Business Space REIT (Soilbuild REIT) announced last Friday the proposed acquisition of an industrial property known as 39 Senoko Way from Tellus Marine Engineering Pte Ltd (Tellus Marine). The total cost of the transaction is expected to be S$18.3m. Upon completion of the deal (around Apr 2014), Soilbuild REIT will lease the property back to Tellus Marine for a term of 10 years via triple-net lease arrangement. We understand that the property is expected to generate an initial NPI yield ranging 7.8%-8.0% and offer an annual rental escalation of 2.5%. Based on our projections, the new addition is likely to add an annualized 0.13 S cent to Soilbuild REIT’s DPU. We maintain BUY on Soilbuild REIT but raise our fair value marginally from S$0.85 to S$0.87 after incorporating the acquisition.

Maiden third-party acquisition
Soilbuild Business Space REIT (Soilbuild REIT) announced last Friday the proposed acquisition of an industrial property known as 39 Senoko Way in Woodlands, Singapore from third-party vendor Tellus Marine Engineering Pte Ltd (Tellus Marine). The total cost of the transaction is expected to be S$18.3m, comprising the purchase price of S$18.0m (S$189 psf GFA) and other acquisition-related expenses. Upon completion of the deal (around Apr 2014), Soilbuild REIT will lease the property back to Tellus Marine for a term of 10 years via triple-net lease arrangement.

More details on transaction
39 Senoko Way consists of an existing four-storey industrial building and a proposed single storey workshop which is expected to complete construction no later than nine months from the completion of the acquisition. The property is held under a JTC lease with a remaining land lease tenure of 10 years and an option to extend by another 30 years, subject to terms and conditions of the JTC lease. Management believes that the proposed acquisition will provide an additional growth driver, stable income as well as diversification to its portfolio assets. We understand that the property is expected to generate an initial NPI yield ranging 7.8%-8.0% and offer an annual rental escalation of 2.5%. This is higher than that seen in most of its existing assets.

Maintain BUY
We anticipate Soilbuild REIT to fund the acquisition wholly by debt and internal resources, as its gearing ratio has remained very robust at 29.3%. Based on our projections, the new addition is likely to add an annualized 0.13 S cent to Soilbuild REIT’s DPU. We now incorporate the acquisition in our forecasts. Accordingly, our fair value is lifted slightly from S$0.85 to S$0.87. Maintain BUY on Soilbuild REIT as the total expected return remains compelling.

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