Soilbuild Business Space Reit

AmFraser Securities, Sept 17

WE initiate coverage on Soilbuild Business Space Reit (Soilbuild Reit) with a "buy" recommendation and a target price of $0.83.

Soilbuild Reit is a Singapore real estate investment trust that comprises two business park assets and five light industrial properties.

Distributions are on a quarterly basis and the first distribution per unit (DPU) is expected on or before Feb 27, 2014.

A best-in-class business space portfolio. Characterised by excellent connectivity to major transport nodes, longest weighted average leasehold term (Wale) for the underlying land of 50.6 years (versus industry average of 40 years) as well as its relatively young age, Soilbuild Reit clearly boasts a quality portfolio.

Defensiveness underpins yield sustainability. Soilbuild Reit is able to effectively capture rental upside at its multi-tenanted properties while enjoying rent stability through its master leases, which comprise 30 per cent of its IPO portfolio by net lettable area (NLA).

The defensiveness of Soilbuild Reit is further enhanced by a diversified trade presence and lease expiry schedule.

Having built-in rental step-ups of 2-3 per cent per annum incorporated into its master leases provides Soilbuild Reit with greater income visibility and underpins the sustainability of its payouts.

Harnessing the increasing appeal of business parks. A key differentiating point of Soilbuild Reit from its industrial S-Reit peers is its stronger exposure to the business park market, a compelling alternative to traditional office space.

Business parks comprise 43.2 per cent of Soilbuild Reit's portfolio valuation (versus peer average of 15.7 per cent).

Initiate "buy" with FV $0.83. Our valuation is derived from a dividend discount model, which incorporates an assumed cost of equity of 7.8 per cent.

Current projected yield of 8.3 per cent is highest among the industrial S-Reits and represents an attractive yield spread of 570 basis points over the risk-free rate.

BUY