Soilbuild Business Space

Soilbuild Business Space REIT: AmFraser initiates coverage on Soilbuild REIT with a BUY rating and a fair value ofS$0.95 based on a dividend discount model. Sponsored by Soilbuild Group Holdings, Soilbuild REIT is a real estate investment trust invested in a portfolio of Singapore-based industrial properties. Despite a short operating history, Soilbuild REIT has announced three third-party acquisitions since March 2014. These come with long master leases and are expected to provide an uplift to DPU with NPI yields between 6.6% - 8%. Expect these properties to fully contribute from FY15. In the ROFR pipeline, Soilbuild REIT could potentially acquire four assets from its sponsor and expand its portfolio GFA by 64% to 6.0m sq ft. Five out of nine properties have in-built master lease arrangements stretching beyond 1Q18, with locked-in rental reversions of min. 2.0% p.a. Additionally, when the opportunity arises, Soilbuild REIT could undertake asset enhancement to maximize the use of its plot ratio, which could add 859,000 sq ft, or 24% to its existing GFA. The master lease arrangements lock in 37% of revenue in our FY14F projection. For Soilbuild REIT’s multi-tenanted properties, rents should still hold up or increase due to the low base. With a DDM-derived fair value of $0.95, see a potential 30% upside (incl DPUs). Find that Soilbuild REIT is currently inexpensively priced even as we vary our cost of equity and long-term growth rate assumptions. Soilbuild REIT looks attractive with a lower price-to-book, higher yield and longer land lease to expiry than its industrial S-REIT peers. Do not think that valuation is demanding as the house have factored a conservative 10-ppt fall in occupancy in the multi-tenanted West Park BizCentral and Tuas Connection, and a 100 bps increase in the all-in interest rate, in view of the soft industrial rental market and a rising interest rate environment respectively.