• Raising gross proceeds of S$59.4m
• Support from largest shareholder
• BUY with higher FV

Preferential offering to raise gross proceeds of ~S$59.4m

Soilbuild Business Space REIT (Soilbuild REIT) announced that it has launched a pro-rata nonrenounceable preferential offering to its existing unitholders to raise gross proceeds of ~S$59.4m (net proceeds of S$59.2m) via the issuance of 94.4m new units at S$0.63 per new unit. This is done on the basis of one new unit for every 10 existing units held by entitled unitholders. The issuance price represents a discount of 7.4% as compared to Soilbuild REIT’s last closing price of S$0.68 before the announcement.

Mr Lim Chap Huat, Soilbuild REIT’s largest shareholder, has committed to take-up his pro-rata entitlement, and also to undertake to apply for excess new units which remain unsubscribed, subject to certain parameters. The net proceeds raised will be utilised to partially fund the proposed acquisition of Bukit Batok Connection (BBC) from Soilbuild REIT’s sponsor, and approval was obtained at an EGM on 18 Aug 2016. The total acquisition cost for the property is expected to be about S$100.5m. We expect the remainder to be funded by debt.

Acquisition to provide stability and visibility

BBC is a nine-storey ramp-up light industrial development with a NLA of 377,776 sq ft. The land tenure has a balance of 26.3 years (30 years with effect from 26 Nov 2012). It is in close proximity to Bukit Batok MRT and also surrounded by a mix of residential, industrial and retail developments. The annual rental is S$8.0m for the initial year, with subsequent rental escalations of up to 2.0% per annum. The initial NPI yield is 7.7% (based on total acquisition costs). The asset will also provide rental stability and visibility to Soilbuild REIT, as it will be leased to SB (Westview) Investment Pte Ltd (subsidiary of Soilbuild REIT’s sponsor) on a double-net master lease structure for seven years.

Maintain BUY

We incorporate this development in our model, and also lower our risk-free rate assumption from 3.0% to 2.4%. Consequently, our fair value estimate is raised to S$0.78 from S$0.76. We recommend unitholders to subscribe to the preferential offering and reiterate our BUY rating on Soilbuild REIT.  

Source: OCBC Research - 22 Aug 2016