Soilbuild Business Space REIT:
BUY (Initiating Coverage) S$0.735;
Worthy Challenger to the Big Boys;
Price Target: 12-Month S$0.87
•Quality portfolio with high exposure in business park space
•Reputable Sponsor with visible inorganic growth pipeline
•Initiate with BUY, TP S$0.87
Quality portfolio with unique competitive strengths. Soilbuild Business Space REIT (“SB REIT”) offers exposure into a modern portfolio of business park/industrial properties in Singapore with a valuation of S$935m. Compared to existing industrial S-REITs, its portfolio is the youngest, with an average age of 3.1 years (by GFA), backed by long land lease tenure of c.51 years. SB REIT will derive 42-43% of its net property income from master leases, with tenures ranging from 5-15 years, and this will offer strong income visibility to the REIT.
High exposure to the business park space. At 43.2% of asset value, SB REIT will have one of the highest exposures in the business park space segment (peers have approximate exposure ranging from 7.9%-20.6% of value), which we believe will remain relevant in the face of Singapore’s growth towards a knowledge-based, value-add manufacturing economy. This augurs well for the performance of the portfolio in the medium term.
Reputable Sponsor with visible inorganic growth pipeline. The Sponsor is Soilbuild Group Holdings Ltd. (“Sponsor”), a leading property group with end-to-end integrated real estate capabilities. The Sponsor has given SB REIT a right of first refusal (ROFR), which currently covers four industrial properties. When acquired and developed completely, the ROFR properties possess the potential to increase the REIT’s GFA by 72%. In addition, SB REIT can extract a further 0.8m sq ft (25% of current GFA) through maximising unutilized GFA from its portfolio.
Initiate with BUY, TP S$0.87. At a FYP13F-15F yield of 7.8%-8.7%, SB REIT offers one of the highest yields amongst the S-REIT space, which is attractive. Our DCF TP of S$0.87 implies a total return of 24%.
Publish date: 26/09/13