Soilbuild Business Space REIT - Phillip Securities 2016-06-16: Inorganic growth through Proposed Acquisition

Soilbuild Business Space REIT - Phillip Securities 2016-06-16: Inorganic growth through Proposed Acquisition  SOILBUILD BUSINESS SPACE REIT SV3U.SI 

Soilbuild Business Space REIT - Inorganic growth through Proposed Acquisition

  • Proposed acquisition of Bukit Batok Connection from Sponsor's ROFR portfolio 
  • Master lease agreement in conjunction with the acquisition
  • Sale and leaseback is an "interested person transaction"
  • EGM to be convened in August 2016
  • Maintain "Accumulate" with unchanged target price of S$0.830



What is the news?

  • Soilbuild Business Space REIT (SBREIT) has announced the proposed acquisition of Bukit Batok Connection (Property located at 2 Bukit Batok Street 23) from the Sponsor's Right of First Refusal (ROFR) portfolio. The Property is to be acquired from SB Westview, a subsidiary of Soilbuild Group Holdings Ltd (the Sponsor). 
  • In conjunction with the acquisition, the property will be leased back to SB Westview for a term of seven years on a double net master lease.

 Sale and leaseback is an "Interested person transaction"; EGM to be convened

  • Mr. Lim Chap Huat is deemed a "controlling Unitholder", as he holds approximately 24.9% of the total number of Units in issue of SBREIT. In addition, Mr. Lim Chap Huat, is also a "controlling shareholder" of the REIT Manager (holding 100% of the issued shares), through his stake in Soilbuild Group Holdings Ltd (the Sponsor). 
  • At the same time, SB Westview (Vendor & Tenant) is a subsidiary of Soilbuild Group Holdings Ltd, of which Mr. Lim Chap Huat holds an indirect 100% interest. An extraordinary general meeting (EGM) is to be convened in August 2016 to seek Unitholders' approval for the transaction.


How do we view this?


Well-located Property with good specifications

  • The Property is surrounded by a high mix of residential, retail and food & beverage amenities at Bukit Batok Central and West Mall. It is in close proximity to Bukit Batok and Jurong East MRT; and easily accessible via major expressways, such as Pan Island Expressway (PIE) and Ayer Rajah Expressway (AYE). 
  • The key feature of the Property is its ramp-up design that allows 20-footer container access to all 9-stories of the factory. Other features include high floor to ceiling height of 6 metres and exclusive parking lots.

Purchase Consideration of S$96.3mn is at fair market value

  • The Property has been valued at S$96.6mn and S$96.0mn by Knight Frank and CBRE respectively. Thus, the Purchase Consideration of S$96.3mn is the average of both Valuers.

Income stability from the master lease

  • Rental is S$8.0mn for the first year, with a rental escalation of up to 2.0% per annum. The double net master lease is for a term of seven years, thus insulating SBREIT from the demand/supply dynamics of industrial land in Singapore.

Expect some form of capital raising

  • The Manager has disclosed that sources of capital being considered to fund the Acquisition are debt, combination of debt and equity, and/or perpetual securities. 
  • SBREIT's leverage would increase from 36.0% to 40.8% if the Acquisition were to be fully funded by debt. The Manager has expressed intention to maintain aggregate leverage between 35.0% and 40.0%.


Maintain "Accumulate" rating and unchanged DDM valuation of S$0.83

  • We keep our forecasts unchanged, in view that the transaction will have to first pass through a resolution at an EGM.




Richard Leow CFTe Phillip Securities | http://www.poems.com.sg/ 2016-06-16
Phillip Securities SGX Stock Analyst Report ACCUMULATE Maintain ACCUMULATE 0.83 Same 0.83


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