SB REIT – OCBC

Best proxy to Singapore industrial market

• Best-in-class portfolio properties
  
• Strong sponsor asset pipeline
  
• Robust financial position
  

Initiate coverage with BUY

We are initiating coverage on Soilbuild Business Space REIT (Soilbuild REIT) with a BUY rating. Our fair value of S$0.82 is based on the dividend discount model, and implies an attractive total expected return of 20.1%. At current price, Soilbuild REIT is trading at the steepest discount of 8.8% to its book value, compared to an average P/B of 1.10x seen across its subsector peers. This is

unjustified in our view given Soilbuild REIT’s quality portfolio assets, growth potential and respectable FY14F yield of 7.8%.

Singapore-based industrial landlord with quality assets

Soilbuild REIT currently owns a young portfolio of seven modern business space properties in Singapore which enjoy excellent connectivity. In addition, Soilbuild REIT has the largest exposure to the business park segment relative to the other industrial SREITs. We like Soilbuild REIT’s exposure in this space because demand in the local scene has been growing steadily throughout the years due to its high quality and lower rents relative to traditional office spaces.

Strong sponsorship from Soilbuild Group

The Sponsor for Soilbuild REIT is Soilbuild Group Holdings, a leading integrated property group based in Singapore. It is one of the few Singapore construction companies that are allowed to tender for public sector projects without any value limitations. Given Soilbuild Group’s track record and expertise, we believe Soilbuild REIT is able to leverage on the capabilities of its Sponsor to grow its income.

Clear growth opportunities

Soilbuild REIT is granted Right of First Refusal (ROFR) by its Sponsor over all its income-producing business space assets in Singapore. The ROFR currently covers four industrial properties, providing Soilbuild REIT with a clear acquisition pipeline. In addition, several of its properties have under-utilized plot ratios, and present opportunities for growth. As of the listing date, Soilbuild REIT is sitting at healthy gearing ratio of 29.9%, while 75.0% of its interest rates are fixed. This not only gives Soilbuild REIT ample debt headroom to pursue its growth plans but also limits its exposure to rising interest costs.