On Friday, Soilbuild Business Space REIT (Soilbuild REIT) announced the proposed acquisitions of two 100%-occupied Australian assets: a centrally located office in Canberra (“14 Mort Street”) for S$55.0m and a poultry processing plant in Adelaide (“Inghams Burton”) for S$61.3m. The acquisitions are expected to be completed in 3Q18.

We note that 14 Mort Street has a 3.75% annual rental escalation while Inghams Burton’s rental escalation is pegged to the % change in Australian CPI. Funding is likely to be a combination of (i) Australian dollar loans and through (ii) the issuance of S$60m or S$100m perpetual securities.

Based on FY17 financials, DPU accretion from the acquisitions would be 1.19% (in the case of S$60m perps) or 0.14% (in the case of S$100m perps), on a pro forma basis. Post acquisition, the Australia properties are expected to make up 9.5% of Soilbuild REIT’s portfolio valuation.

While we note the DPU accretion is minimal, we see this geographical diversification as a right step for Soilbuild REIT’s portfolio. For now, we maintain BUY on Soilbuild REIT with an unchanged fair value of S$0.69.

Source: OCBC Research - 10 Sept 2018