SB REIT – DBSV

Maiden acquisition

• Maiden acquisition in Woodlands
  
• Accretive deal; FY14-15F earnings raised by c1.5% each
  
• BUY, TP raised to S$0.89 based on DCF
  

Maiden acquisition in Woodlands. Soilbuild REIT (SBREIT) announced it has acquired 39 Senoko Way, from Tellus Marine Engineering Pte Ltd for a total consideration of S$18m. The property will be acquired in two phases – an existing 4-storey industrial property (c. S$14.6m) and a proposed construction of a single storey warehouse (S$3.4m). Upon completion of both phases of the acquisition, the property will have total GFA of 95k sqft and sits on a long remaining lease tenure of 40 years (including a 30 year extension).

Accretive acquisition with long WALE, gearing to increase to c. 30.7%. The property will be leased back to the vendor, Tellus Marine Engineering Pte Ltd on a triple net basis for a period of 10 years offering good income visibility to SBRIET. The property is estimated to contribute c. 2% to portfolio and revenues. The initial yield is estimated to be north of 7.5%, which is higher than the portfolio average of 6.3%, implying that the deal will be earnings accretive to SBREIT. Given sufficient debt headroom, SBREIT will be funding this acquisition using debt and gearing is estimated to increase to c. 30.7%.

Maintain BUY, TP S$0.89. We have raised FY14-15F earnings by c1.5% each as we include this acquisition in our forecasts. Yields are attractive at c7.9-8.5%, one of the highest amongst the industrial REITs. Maintain BUY, TP revised slightly higher to S$0.89 based on DCF.