SB REIT – AmFraser

We initiate coverage on Soilbuild Business Space REIT with a BUY recommendation and a target price of S$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 DPU is expected to be distributed on or before 27 Feb 2014.

A best‐in‐class business space portfolio. Characterized by an 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 underpin yield sustainability. Soilbuild REIT is able to effectively capture rental upside at its multi‐tenanted properties while enjoying rent stability through its master leases, that comprises 30% of its IPO portfolio by NLA. The defensiveness of Soilbuild REIT is further enhanced by a diversified trade presence and lease expiry schedule. With built‐in rental step‐ups of 2‐3% per annum incorporated into its master leases, this 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% of Soilbuild REIT's portfolio valuation (versus peer average of 15.7%).

Initiate BUY with FV S$0.83. Our valuation is derived from a dividend discount model, that incorporates an assumed cost of equity of 7.8%. Current projected yield of 8.3% is highest among the industrial S‐REITs and represents an attractive yield spread of 570 basis points over the risk‐free rate.