Exceeding expectations. For the period from listing date of 16 Aug to 31 Dec 2013, Soilbuild REIT recorded a DPU of 2.27c, exceeding our forecast of 2.1c. This continued strong showing largely stems from positive rent reversions, 100% retention of leases and a low all‐in interest rate of 3.12%.

A showcase of stability. Since listing, Soilbuild REIT has retained 100% of its leases expiring and recorded portfolio occupancy of 99.9% as at Dec 2013. With expiring rents below current market rents, Soilbuild REIT continues to revert positively on its expiring rents, witnessing rent reversions of 7.9% post‐listing.

Mitigating its interest rate exposure. 100% of Soilbuild REIT’s borrowings are currently hedged into fixed rates through interest rate swaps of 1 to 4 years in duration. Thanks to its conservative capital management initiatives, Soilbuild REIT achieved an all‐in interest rate of 3.12%, noticeably lower than its forecasted interest rate of 3.28% in the Prospectus.

A visible acquisition pipeline. Boasting an aggregate leverage of 29.3%, Soilbuild REIT has an additional debt headroom of S$79.9mil. We believe this provides considerable ammunition for Soilbuild REIT to carry out acquisitions. With regards to acquisitions, Soilbuild REIT could potentially tap on its Right of First Refusal (ROFR) pipeline of four properties in Singapore, that could contribute an estimated GFA of 2,335,694 sq ft.

Maintain BUY on FV S$0.87. Soilbuild REIT’s DPU of 2.27c translates into an annualized yield of 7.8%, which is compelling in our view given the quality of its assets, longest weighted average land lease and diversified lease expiry profile.

Soilbuild REIT’s performance exceeding prospectus guidance.

Soilbuild REIT recorded a DPU of 0.76c for the period from Listing Date (16 Aug 2013) to 30 Sep 2013. This represents an increase of 3% over the forecast DPU of 0.738c, and forms 36.2% of our DPU forecast of 2.1c for the period from listing to end‐Dec 2013. The DPU of 0.76c is payable on 4 Dec 2013.

Achieving positive improvements at the operating level.

Soilbuild REIT’s positive variance from its projected DPU in its prospectus is attributable to operational improvements across the board. Expansion by an existing tenant at Eightrium as well as 100% retention of leases expiring allowed Eightrium to improve its occupancy levels from 95.3% at IPO to 97.4% at 30 Sep 2013. As a result, portfolio occupancy is currently at 99.8%, with no remaining leases due for expiry in FY13. Notably, leases that were renewed achieved positive rent reversions of 7.9% over preceding average rental rates, in line with our expectations, which further supported underlying distributable income.

75% of interest rate exposure hedged.

Also, Soilbuild REIT managed to achieve an all‐in interest cost of 3.11% as at 30 Sep 2013, and this compares favourably with its guidance of 3.28% in its Prospectus. Aggregate leverage stood at 29.4%, below the 29.9% forecast in the Prospectus.

Stability and growth at the heart of our investment thesis.

We continue to like Soilbuild REIT for its best‐in‐class business space portfolio, yield sustainability and stronger‐than‐average exposure to the business park market. At current levels, we project Soilbuild REIT’s FY14 yield at 7.9%, which makes it a very compelling yield play among S‐REITs. Maintain BUY at FV S$0.84.

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.

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.