SB REIT – AmFraser

First third‐party acquisition since August 2013 IPO. On 11 March 2013, Soilbuild REIT signed a conditional sale and purchase agreement with Tellus Marine Engineering Pte Ltd (“Tellus Marine”) for the acquisition of 39 Senoko Way. The property consists of an existing four‐storey industrial building and a proposed extension, a single storey workshop, and has 10 years remaining on its lease (expiry February 2024), with the option of a further 30‐year term. Upon completion of the acquisition in 2Q2014, the building will be leased to Tellus Marine, the current occupant, under a triple‐net lease for a term of 10 years. The cost of the acquisition is S$18.3m, including a purchase consideration of S$18.0m and other acquisition related costs.

First step towards growth. We like the 10‐year leaseback term with annual rental step‐ups, and believe the acquisition will be DPU accretive as the median rent for Senoko Way properties stood at S$1.7psf in 2013. Also, we noted in January 2014 that Soilbuild REIT has an additional debt headroom of S$79.9m at its current aggregate leverage of 29.3%. Assuming the acquisition is fully funded by debt, we estimate aggregate leverage increases to 30.7%, a reasonable level in our view.

Reiterate BUY, TP S$0.90. We like Soilbuild REIT for its consistent performance: exceeding its forecast DPU by 3% and managing borrowings prudently to achieve a lower all‐in interest rate of 3.12% versus the forecast rate of 3.28% in its prospectus. We estimate the acquisition to add 3 cents to our previous fair value of S$0.87, assuming a S$2.00 psf rental rate, 2.5% annual rental step‐ups, and the completion of the proposed extension in 2Q15. This increases our forecast FY2014 DPU by 0.5% to 6.2 cents and FY2015 DPU by 3.0% to 5.7 cents. Our forecast DPU provides a generous 8.1% yield over the last traded price of S$0.765.