Thursday, August 08, 2013

Soilbuild Business Space REIT

Short Summary:
Soilbuild REIT is a Singapore real estate investment trust (“REIT”) with an initial portfolio (“IPO Portfolio”) of quality business space properties located in Singapore. “Business space” refers to (i) all properties zoned as business park (which includes business space used primarily for office, including any ancillary usage, so long as such usage is permitted under the relevant regulation) and (ii) industrial properties (including, but not limited to, ramp-up facilities, flatted factories and light industrial properties) which are used primarily for, among others, manufacturing, engineering, logistics, warehousing, electronics, marine, oil & gas, research and development and value-added knowledge based activities. Soilbuild REIT’s initial portfolio of properties comprises seven business space properties – two business park properties and five industrial properties. They include Solaris, an iconic business park development in one-north, Eightrium @ Changi Business Park, Tuas Connection, and West Park BizCentral.

The Deal:
Offering Price: S$0.78
The Offering: 803,469,000 Shares (Include 62,500,000 Offering Shares to Singapore Public)
Cornerstone Investors: 216,936,999 Cornerstone Shares to Mr Lim Chap Huat
Forecast Dividend Yield:
2013: 5.65% (Not annualized)
2014: 7.74%
*Based on issue price of $0.78, 803,469,000 units after IPO.
Dividend Policy:
Distributions from Soilbuild REIT to Unitholders will be computed based on 100.0% of Soilbuild REIT’s Annual Distributable Income for the period from the Listing Date to 31 December 2014. Thereafter, Soilbuild REIT will distribute at least 90.0% of its Annual Distributable Income on a quarterly basis.
-Quality Portfolio with Unique Competitive Strengths. Strategically located portfolio with high specifications and excellent connectivity. Young and modern properties with weighted average age of 3.4 years (by GFA). Longest weighted average leasehold term for underlying land of 50.4 years compared to other industrial S-REITs
-Exposure to Quality Business Park Properties. Largest exposure to business park sector compared to other industrial S-REITs. High quality specifications of Soilbuild REIT’s business parks, lower rents vis-à-vis traditional office space, and proximity to MRT stations. REIT to capitalise on the growth in the business parks segment in Singapore
-Potential for Attractive Returns and Upside Growth. Stable stream of rental income with growth from fixed rental escalation of Master Leased Properties and upside potential through reversion of multi-tenanted properties. Soilbuild REIT has a Right of First Refusal currently covering four properties with a maximum GFA in excess of 2.3 million sq ft, which would increase the total portfolio GFA by more than 72%
-Sponsorship by Leading Integrated Property Group. The Sponsor has close to 37 years of experience and is committed to support Soilbuild REIT with a stake of 27.0% (assuming the Over-Allotment option is not exercised) Sponsor with End-to-End Integrated Real Estate Management capabilities. Ability to tap on the Sponsor’s extensive network to source third party acquisition opportunities and undertake asset enhancements for Soilbuild REIT’s developments
-Experienced Management Team Incentivised to Maximise Distributions to Unitholders. The Management Team has extensive experience and a track record in managing S-REITs, property development, investment, marketing, leasing and finance. Performance-based management fees to align the interests of the Manager with Unitholders
-Relatively low gearing of 30.05%
-Planned amenities and transportation infrastructure near the Properties may not be implemented as planned or may be closed, relocated, terminated, delayed or not completed.
-Renovation or redevelopment works or physical damage to the Properties may disrupt the operations of the Properties and collection of rental income or otherwise result in an adverse impact on the financial condition of Soilbuild REIT.
-The Properties may face increased competition from other properties.
-There is no assurance that Soilbuild REIT will be able to renew any JTC lease for an additional term.
-In the event that the Land Transport Authority requires the internal roads or road access of Tuas Connection to be handed over to the state, Soilbuild REIT will have to pay to JTC an upfront land price for the internal roads and road access.
-Since 1 January 2013, all REITs are to pay land premium upfront in respect of industrial building acquisitions on JTC leased land sites or for land lease extensions.
-The Singapore Government has imposed control measures in the Singapore property market.
-Portions of Eightrium @ Changi Business Park and COS Printers are within the railway protection zone and railway safety zone and certain activities may not be carried out in such zones unless the prior approval of the Land Transport Authority of Singapore is obtained.
-Certain parts of Tuas Connection and West Park BizCentral are affected by lines of road reserves.
In my opinion, This IPO is worth a try given its 7.50+% dividend yield. Industrial sector is estimated to continue to grow given Singapore government friendly policy to foreign companies investing in Singapore. JTC is also estimated, in my opinion, to continue offloading old properties (>25 years old) to private companies (Eg: Aquisitation of Kallang properties fom JTC by Soilbuild and in 2011 and 2012, aquisitation of Marsiling and Kallang properties from JTC by Mapletree), so there is plenty opportunities for industrial REITs to grow in Singapore. Given Soilbuid relatively low gearing, it has a high potential to buy out the properties that it has a first right of refusal to add value to unitholders. Though the IPO is finally priced in the mid range, I will still recommend to invest in this counter. I personally will be applying for this IPO.
Some useful information:
[07 Aug 2013], [6.00 p.m.] : Opening date and time for the Public Offer.
[14 Aug 2013], [12.00 noon] : Closing date and time for the Public Offer.
[15 Aug 2013]: Balloting of applications under the Public Offer, if necessary.
[16 Aug 2013], [2.00 p.m.]: Commence trading on a “ready” basis.
Rating for investment: 7.5/10

Disclaimer: You may use the above information as a guide, but please invest based on your own judgment.

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