Soilbuild Business Space REIT - DBS Research 2016-06-15: Activates Sponsor Pipeline

Soilbuild Business Space REIT - DBS Research 2016-06-15: Activates Sponsor Pipeline SOILBUILD BUSINESS SPACE REIT SV3U.SI 

Soilbuild Business Space REIT - Activates Sponsor Pipeline

  • Proposed acquisition of Bukit Batok Connection for S$96.3m
  • Initial yield of 8.3% (8.0% on total acquisition cost) will remain stable; backed by a 7-year master-lease arrangement
  • Accretive to earnings, equity fund raising exercise expected to part fund the acquisition


BUY for attractive and growing yields. 

  • With yield of c.9.1%, one of the highest in the S-REIT universe, we believe that negatives are priced in and SBREIT remains an attractive laggard play among peers. I
  • ts quality portfolio of business parks and hi-tech factories, coupled with a long WALE of 4.9 years should weather the REIT through the current soft operating climate.


Acquisitions to drive earnings as portfolio undergoes tenant churn. 

  • The Manager is proposing to acquire Bukit Batok Connection from the sponsor Soilbuild Group for S$96.3m, and expects to complete the deal in 3Q16 after approval from unitholders in an EGM, will. Acquired at an NPI yield of 8.3% (8.0% on total acquisition cost) and a lease-back to the sponsor for 7 years, the deal is accretive to earnings. 
  • Assuming that SBREIT intends to maintain its current gearing of 36%, up to S$55m of new equity or about 8% of its market share will need to be raised.


Conservative capital management shields SBREIT substantially from rate hikes in the immediate term. 

  • The Manager has lengthened the debt expiry profile to 3.6 years with an all-in cost of debt of 3.36%, and has hedged close to 100% into fixed rate. This provides a buffer against any interest rate uncertainty in the medium term.


Valuation:

  • We have a DCF-backed TP of S$0.84, supported by an attractive yield of c.8.4%. 
  • Maintain BUY.


Key Risks to Our View:

  • Interest rate risks. Rise in interest rates in the medium term will have a negative impact on distributions but the Manager has substantially hedged out these risks with a high percentage of fixed rate borrowings. 




Derek Tan DBS Vickers | Mervin Song CFA DBS Vickers | Singapore Research Team DBS Vickers | http://www.dbsvickers.com/ 2016-06-15
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 0.84 Same 0.84


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