Singapore Company Focus
Soilbuild Business Space REIT Refer to important disclosures at the end of this report
Bloomberg: SBREIT SP | Reuters: SBSR.SI
DBS Group Research. Equity
26 Sep 2013
BUY S$0.735 STI: 3,208.58
Worthy Challenger to the Big Boys
(Initiating Coverage) Price Target: 12-Month S$0.87 Reason for Report : Initiating coverage Potential Catalyst: Acquistiions Analyst Derek TAN +65 6398 7966
[email protected] Singapore Research Team +65 6398 7974
[email protected]
Price Relative S$
R e la t iv e In d e x
0 .9 203
0 .9
183
0 .8
163 0 .8 143 0 .7
123
0 .7
103
0 .6 A u g -1 3
83
S o ilb u ild B u s in e s s S p a c e R e it ( L H S )
R e la t iv e S T I IN D E X ( R H S )
Forecasts and Valuation FY Dec (S$ m)
Gross Revenue Net Property Inc Total Return Distribution Inc EPU (S cts) EPU Gth (%) DPU (S cts) DPU Gth (%) NAV per shr (S cts) PE (X) Distribution Yield (%) P/NAV (x) Aggregate Leverage (%) ROAE (%) Consensus DPU (S cts): Other Broker Recs:
*2012A
**2013F
2014F
2015F
55 36 20 29 2.5 (53) 3.6 58 79.0 29.5 4.9 0.9 29.4 3.2
65 53 38 46 4.7 90 5.7 59 79.5 15.5 7.8 0.9 29.3 6.0
68 55 40 49 4.9 3 6.0 4 79.5 15.1 8.1 0.9 29.2 6.1
72 59 43 52 5.2 7 6.4 7 79.6 14.1 8.7 0.9 29.2 6.5
B: 3
5.8 S: 0
6.0 H: 0
*Proforma **Annualised basis ICB Industry : Financials ICB Sector: Real Estate Investment Trusts Principal Business: SBREIT is a REIT which invest primarily in industrial assets located in Singapore
Source of all data: Company, DBS Vickers, Bloomberg Finance L.P
www.dbsvickers.com ed: TH / sa: JC
Quality portfolio with high exposure in business park space
Reputable Sponsor with visible inorganic growth pipeline
Initiate with BUY, TP S$0.87
Quality portfolio with unique competitive strengths. Soilbuild Business Space REIT (“SB REIT”) offers exposure into a modern portfolio of business park/industrial properties in Singapore with a valuation of S$935m. Compared to existing industrial S-REITs, its portfolio is the youngest, with an average age of 3.1 years (by GFA), backed by long land lease tenure of c.51 years. SB REIT will derive 42-43% of its net property income from master leases, with tenures ranging from 5-15 years, and this will offer strong income visibility to the REIT. High exposure to the business park space. At 43.2% of asset value, SB REIT will have one of the highest exposures in the business park space segment (peers have approximate exposure ranging from 7.9%-20.6% of value), which we believe will remain relevant in the face of Singapore’s growth towards a knowledge-based, valueadd manufacturing economy. This augurs well for the performance of the portfolio in the medium term. Reputable Sponsor with visible inorganic growth pipeline. The Sponsor is Soilbuild Group Holdings Ltd. (“Sponsor”), a leading property group with end-to-end integrated real estate capabilities. The Sponsor has given SB REIT a right of first refusal (ROFR), which currently covers four industrial properties. When acquired and developed completely, the ROFR properties possess the potential to increase the REIT’s GFA by 72%. In addition, SB REIT can extract a further 0.8m sq ft (25% of current GFA) through maximising unutilized GFA from its portfolio. Initiate with BUY, TP S$0.87. At a FYP13F-15F yield of 7.8%-8.7%, SB REIT offers one of the highest yields amongst the S-REIT space, which is attractive. Our DCF TP of S$0.87 implies a total return of 24%. At A Glance Issued Capital (m shrs) Mkt. Cap (S$m/US$m) Major Shareholders Lim Chap Huat (%) Schroders Plc (%) Temasek Holdings (%) Free Float (%) Avg. Daily Vol.(‘000)
803 591 / 471 29.5 9.0 6.2 55.3 10,321
Company Focus Soilbuild Business Space REIT
A quality portfolio with modern attributes. Soilbuild Business Space REIT (“SB REIT”) offers investors the opportunity to invest in a modern portfolio of business space/industrial properties in Singapore. The initial portfolio comprises seven properties with a total NLA of 3.0m sq ft. The properties in the initial portfolio have a weighted average age of 3.1 years (by GFA), making it one of the most modern business space/industrial S-REITs. Four out of the seven properties (Solaris, Eightrium @ Changi Business Park, Tuas Connection and Westpark BizCentral) in the portfolio are designed, constructed and conceptualised with high quality specifications by its Sponsor, Soilbuild Group Holdings Ltd. The portfolio is backed by a long remaining land lease term of 50.6 years, offering stability to the portfolio. Highest exposure to Business Park space. SB REIT has 43.2% of the asset valuation of its initial portfolio in the business park space, one of the highest compared to other industrial S-REITs, which range from 8%-21%. We believe the portfolio’s focus in the business park space will allow it to remain relevant and see sustained tenant demand due to the changing face of Singapore’s manufacturing sector as the country undergoes an economic restructuring and heads towards a knowledge-based economy, and a value-added manufacturing hub in the region. Master lease with in-built escalation clauses provides medium term stability and growth to distributable income. SB REIT will derive between 42%-43% of its net property income from the master leases with tenures ranging from 5-15 years, offering strong and stable income visibility for the REIT. Thus, SB REIT has a weighted average lease expiry (“WALE”) profile of 4.1 years, one of the longest among the Singapore-focused industrial S-REITs. In addition to in-built rental escalations from its master-leases, SB REIT’s multi-tenanted properties (Eightrium @ Changi Business Park, Tuas Connection and West Park BizCentral) are well-located in their respective micro-markets, with expected positive rental reversions, given the lower than market passing rents over FYP13F-14F. As such, we project SB REIT to deliver an annualised FYP13F-14F net property income growth of 3.9%. Backed by reputable Sponsor with end-to-end estate integrated capabilities. The Sponsor is Soilbuild Group Holdings Ltd. (“Sponsor”), a leading integrated property group with over 40 years of experience and a successful track record in property development, construction, leasing and managing a portfolio of residential and business space properties. SB REIT is thus able to leverage on the Sponsor’s expertise and undertake development activities or built-to-suit activities.
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ROFR pipeline from Sponsor, potential development opportunities with its portfolio offer inorganic growth upside. SB REIT stands to benefit from a visible ROFR pipeline of four business space properties which, when acquired, offer the potential to add c.2.3m sq ft in additional space or 72% in GFA. In addition, we estimate that the portfolio GFA of 3.2m sq ft is c.25% below its maximum allowable built-up potential (per 2008 Master Plan). This implies that a further c.0.8m sq ft of additional GFA can be developed in their portfolio in the medium term. Gearing of c29% provides the debt headroom for further acquisitions. SB REIT’s estimated gearing of c29% before its credit rated status means that its gearing will be capped at 35%, implying a potential to fully debt fund c.S$70m worth of acquisitions (till 35% gearing level). Given the relative bite-sized nature of industrial properties, this headroom should be sufficient for SB REIT to acquire one or two more industrial properties. Upon receipt of a credit rating, the REIT will have further financial capacity to debt-fund new acquisitions amounting to S$250m (at 45% gearing) and potentially up to S$700m (at 60% gearing ratio). Experienced management team. The CEO of SB REIT is Mr. Shane Hagan, with Mr. Kelvin Chow Chung Yip as CFO, Mr. Roy Teo Seng Wah as COO, Mr. Russell Ng Keh Yang as Head of Investment/Investor Relations and Mr. Fendy Wijaya as Senior Analyst. The management team has over 50 years of combined real estate experience in the S-REIT space and has an extensive track record in managing, sourcing, acquiring and operating business space and industrial properties and in REIT management in Singapore. Their experience will be crucial in guiding and strategising the growth of SB REIT going forward. Initiate with BUY, TP S$0.87. At a FY14F-15F yield of 7.7%8.6%, SB REIT offers one of the highest yields amongst the SREIT space, which is attractive. Our DCF TP of S$0.87 implies a total return of 24%.
Company Focus Soilbuild Business Space REIT
SWOT Analysis Strengths A modern portfolio with long underlying land lease tenure. The properties in the initial portfolio have a weighted average age of 3.1 years (Sponsor’s properties are an average 1.6 years), making it one of the most modern in comparison to listed industrial REITs. This is backed by a long weighted average land lease term of c.51 years, offering stability to the portfolio. Master lease with in-built escalation clauses provides medium term stability and growth to vehicle. SB REIT will derive 42-43% of its net property income from the master leases, with annual escalations to ensure a stable and sustained growth profile for the REIT. As such, SB REIT has a weighted average lease expiry profile of 4.2 years, one of the longest amongst the Singaporefocused industrial S-REITs. Backed by Sponsor with a complete real estate value chain expertise. The sponsor is Soilbuild Group Holdings Ltd., a leading integrated property group with c.40 years of experience and a long and successful track record in property development, construction, leasing and managing a portfolio of residential and business space properties. SB REIT is thus able to leverage off the Sponsor’s expertise and undertake property development activities or built-to-suit projects. ROFR pipeline from Sponsor provides acquisition opportunities for inorganic growth. SB REIT stands to benefit from a visible pipeline of four industrial properties which, when acquired could mean a further growth of c.2.3m sq ft in additional space or an equivalent of 72% in GFA. Capable management team. With over 50 years of combined real estate experience, the management team, helmed by CEO Mr. Shane Hagan, has an extensive track record in sourcing, acquiring and in the operations of industrial properties and in REIT management. Opportunities Singapore moving into a knowledge-based, high-value manufacturing economy. Structural changes in Singapore economy, supported by government’s push to grow Singapore into a more established knowledge based economy would translate to higher demand for high-valued added manufacturing activities. Thus, business parks space, which SB REIT has a large exposure in, is likely to see sustained demand in the future. Under-utilised portfolio. Based on our estimates, the portfolio GFA of 3.2m sq ft is c.25% below its maximum allowable builtup potential (per 2008 Master Plan). This implies a potential c.0.8m sq ft of additional GFA for the portfolio when the properties are fully-developed to maximize the plot ratio.
Weaknesses Capital intensive industry. Property investment is a capital intensive industry. As SB REIT continues to grow its portfolio, the balance sheet and capital management are the key areas of focus for the management. Loan covenants restrict gearing to 45% (if SB REIT is rated). Key covenants include SB REIT having a consolidated net worth of at least S$600m and the deposited property shall not be less than S$880m at any time and SB REIT having a minimum interest coverage ratio of at least three times. SB REIT will also be subjected to a 45% gearing cap if the REIT is rated. This may limit the ability for SB REIT to fund growth via debt in the longer term.
Threats Key risks include sector risks such as government intervention. The government imposed seller stamp duties on industrial properties to moderate speculation, which serves as an indication that they are monitoring the real estate prices closely and is willing to step in. In addition, the authorities continue to push out new industrial land supply so as to meet industrialists’ real estate needs, which might mean a cap in further meaningful growth in market rents. Restructuring of Singapore economy may result in structural squeeze in selected industries in Singapore. The path towards restructuring Singapore’s economy into a more knowledge based, high-value manufacturing could mean that selected industries might become uncompetitive and be forced to move out of Singapore.
Source: DBS Vickers
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Company Focus Soilbuild Business Space REIT
Summary SB REIT with Other Listed Industrial REITs There are seven other industrial S-REITs listed on the SGX. Below is a summary of salient differences between the SB REIT
portfolio compared against other listed industrial S-REITs. Details such as portfolio mix, lease expiry profile and balance sheet metrics are covered below.
Comparison of listed Industrial REITs REIT Portfolio Details Market Cap (S$'bn) No. of Properties Total Asset Value (S$'bn) Total Portfolio NLA ('m sq ft) FY-end Geographical Exposure
% Breakdown by Asset Value Business/Science Parks Hi-Tech Industrial Light Industrial Flatted Factories Logistics & Dist. Centres Stack-up/Ramp-up Retail Warehouse/Others
SB REIT
A-REIT
MINT
MLT
0.7 7 0.93 3.0
5.5 103 6.96 30.0
2.2 83 2.97 19.1
2.7 112 4.24 31.2
Dec Singapore
Dec Singapore China
Mar Singapore
Mar Asia Pac
Cache
Cambridge REIT
AIMSAMP REIT
Sabana REIT
1.0 12 1.07
0.9 51 1.27 8.0
0.8 25 1.05 1.05
0.8 21 0.87 4.2
Dec Singapore China
Dec Singapore
Mar Singapore
Dec Singapore
by GRI
by GRI
4.8
43.2% 22.9% 34.9% -
35.0% 25.0% 11.0% 4.0% 24.0% 1.0%
17.9% 7.5% 60.0% 1.0% 13.6% -
100.0% -
100.0% -
30.0% 28.6% 41.4% -
16.3% 13.3% 39.6% 30.8% -
42.4% 15.2% 42.4% -
51
46
48
45
37
34
40
39
Lease Details Contribution of Top 10 Tenants (GRI) Master Lease Multi-Tenanted WALE (Years)
54.6% 40.0% 60.0% 4.2
24.1% 65.0% 35.0% 3.7
19.6% 7.0% 93.0% 2.4
25.0%61.0% 39.0% 5.3
100.0% 0.0% 3.7
43.5% 81.0% 19.0% 3.4
44.4%42.0% 58.0% 3.2
92.0% 8.0% 1.9
Lease Expiry Profile 2013 2014 2015 2016 2017
by GRI 2.8% 14.7% 26.9% 6.2% 47.5%
by GRI 21.4% 22.5% 18.8% 10.0% 27.4%
by GRI 27.7% 26.8% 21.9% 5.4% 18.2%
by NLA 15.2% 14.9% 18.1% 11.2% 39.9%
By GFA 0.0% 6.0% 36.0% 33.0% 25.0%
by GRI 14.1% 28.8% 14.1% 12.3% 30.3%
by NLA 3.9% 8.7% 18.8% 21.2% 47.4%
by GRI 44.7% 8.7% 39.9% 3.0% 3.7%
Gearing (%) Average Cost of Debt ) % of Debt Hedged Interest Cover (x) Debt Duration (years) Debt Rating
29.9% 3.32%
28.3% 3.32%
34.9% 2.40%
33.8% 2.40%
29.2% 3.52%
35.3% 4.08%
44.0% 2.80%
37.70 4.30%
75% 4.5 3.2 nil
75% 4.9 3.9 A3
88% 6.6 2.7 BBB+
70% 6.6 3.9 Baa1
70% 6.0 2.6 Baa3
82% 4.8 1.7 BBB-
92% 4.9 3.1 BBB-
N/A 5.1 3.00 BBB-
Land Lease Tenure (Years)
Source: Various listed S-REITs, Manager, DBS Vickers
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Company Focus Soilbuild Business Space REIT
Property Portfolio Location of SB REIT properties
Source: Manager, DBS Vickers
Salient details of SB REIT properties Property
Property Age
Remaining Land Lease
Higher of 2 valuations
Valuation CBRE
Valuation Colliers
Lease Arrangement
Vendor / Master Lessee
Business Park
(Years) 5.5
(Years) 55
(S$’m) 101.0
(S$’m) 95.0
(S$’m) 101.0
Multi-tenanted
N/A
0.44
Business Park
1.5
55
303.0
303.0
300.0
Master Lease
0.61
0.65
2.7
53
125.0
125.0
125.0
Multi-tenanted
1.41
1.24
0.5
38
313.0
303.0
319.0
Multi-tenanted
N/A
0.31
0.31
12.2
34
61.0
60.0
61.0
Master Lease
0.06
0.06
16.2
29
11.0
10.8
11.0
Master Lease
Beng Kuang Marine
0.07
0.07
Multi-User Land Based Factory Multi-User Ramp Up Factory Single-User Factory Single-User Factory Single-User Factory
SB (Solaris) Investment Pte. Ltd. N/A
12.9
44
15.0
14.5
15.0
Master Lease
NK Ingredients Pte Ltd C.O.S Printers Pte Ltd PICCO Enterprise Pte. Ltd.
SB REIT Portfolio
3.23
2.96
3.1
51
935.0
911.3
932.0
Eightrium @ Changi Business Park Solaris
Tuas Connection West Park BizCentral NK Ingredients COS Printers
GFA
NLA
Asset Type
(‘m sqft) 0.21
(‘m sqft) 0.18
0.55
Source: Manager, DBS Vickers
Page 5
Company Focus Soilbuild Business Space REIT
High Quality Industrial Portfolio Quality, well-located property portfolio. SB REIT offers investors the opportunity to invest in a portfolio of business park/industrial properties which are strategically-located in key business hubs across Singapore. The properties are located in key technology, media and back office hubs (One-North and Changi Business Park) and key industrial clusters in Tuas. These industrial/business hubs are located near transportation ports such as Jurong Port and Changi Airport and situated close to major road infrastructures and train stations. The initial portfolio comprises seven properties with a total NLA of 2.96m sq ft. In terms of NLA and valuation, West Park BizCentral, Tuas Connection, Solaris and Eightrium @ Changi Business Park, which are assets to be acquired from the Sponsor, account for a majority of SB REIT’s initial portfolio - at c.85% of NLA and c.90% of portfolio valuation. The remaining three properties, which the sponsor acquired from 3rd parties, make up of c15% and c10% of NLA and portfolio value respectively.
Modern portfolio with a weighted average age of 3.1 years by GFA (Sponsor’s properties are an average 1.6 years); SB REIT’s portfolio is one of the most modern among the industrial SREITs. Four out of the seven properties (Solaris, Eightrium@ Changi Business Park, Tuas Connection and Westpark BizCentral) in the initial portfolio are designed, constructed and conceptualised with high quality specifications by its Sponsor, Soilbuild Group Holdings Ltd, an experienced property developer who has amassed a wealth of expertise in design-and-build schemes in the business space segment, after working closely with government agencies like the Jurong Town Corporation (JTC) under the Developer Partnership Programme. In addition, the remaining three properties (NK Ingredients, Beng Kuang Marine and COS Printers), which were acquired from 3rd parties, are well located in the Tuas Industrial zone. The properties are mainly user-occupied and offer upside from redevelopment opportunities in the medium to long term (NK Ingredients and COS Printers), where there is unutilised GFA. Value can be extracted through maximising plot ratios, therefore raising leasable areas.
Breakdown of SB REIT Portfolio by Valuation
Source: Manager, DBS Vickers
Strong tenant base with a good diversity in trade sectors. Given efficient designs, good property specifications and locations, SB REIT’s properties enjoy good tenant demand and serve a well-diversified group of tenants, ranging from small and medium enterprises (SMEs), government agencies to multinational corporations (MNCs). The portfolio has an estimated weighted average occupancy rate of 98.7% as of 31st March 2013 (by revenue). We note that a significant 26.3% of revenues are derived from its Sponsor, Soilbuild Group Holdings (through SB (Solaris) Investment Pte Ltd (24.2%) and SB Storage Pte Ltd (2.4%)). Top 10 tenants (excluding the Sponsor) account for less than 30% of gross rental income (GRI).
Breakdown of SB REIT Portfolio by NLA
Tenant/Sub-Tenant Types
West Park BizCentral 34% Tuas Connection 13% COS Printers 1%
M u l t i-User Factor y, 47% S i n gle-user F a c tory 10%
NK Chemicals 7%
Beng Kuang Marine 2%
B u s iness Park 43% Eightrium 11% Solaris 32%
Tuas Connection 42%
COS Printers 2%
M u l t i-User Factor y, 64% S i n gle-user Facto ry 1 5 % NK Ingredients 11%
SMEs, 39.7%
Beng Kuang Marine 2%
MNCs, 58.0%
B u s iness Park 21% Solaris 6%
West Park BizCentral 22% Eightrium 15%
Source: Manager, DBS Vickers
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Source: Manager, DBS Vickers Government Agencies, 2.3%
Company Focus Soilbuild Business Space REIT
Top 10 tenants (by GRI for the month of Jun 2013) No. 1 2 3
4 5 6 7
Tenant
Property
Tenant Trade Sector
% of GRI
SB (Solaris) Investment Pte Ltd NK Ingredients Pte Ltd
Solaris
Real Estate
23.9%
NK Ingredients
Chemicals
7.6%
DB Schenker
West Park BizCentral
Supply Chain Management, 3rd Party Logistics, Freight Forwarding Food Products & Beverages Financial
5.9%
Trade Sector Analysis of Underlying Tenants (by NLA)
Nestle Singapore (Pte) Ltd Barclays Technology Centre Singapore Limited Dyson Operations Pte Ltd
Eightrium
West Park BizCentral
Financial
2.1%
SB Storage Pte Ltd
West Park BizCentral
Precision Engineering, Electrical and Machinery products Marine Offshore, Oil & Gas Marine Offshore, Oil & Gas
2.4%
Education & Social Services
1.6%
Eightrium @ CBP
8
Flowserve Pte Ltd
Tuas Connection
9
PICCO Enterprise Pte Ltd
Beng Kuang Marine
10
Knowledge Universe Singapore Pte. Ltd. Top 10 Tenants
Eightrium
Diversified tenant base. The underlying tenants in SB REIT’s portfolio are well spread across various industrial trade sectors. These sectors range from Precision Engineering, Electrical and Machinery Products (18.2%), Marine & Offshore (14.9%), Chemicals (12.4%), Supply Chain Logistics (12.5%), Fabricated Metal Products (7.3%) and others. This further highlights its diversity and the lack of dependence on the performance of any specific trade sector.
Others, 8.7%
4.5% 2.5%
Fabricated Metal Products, 7.3%
Chemicals, 12.0%
Electronics, 4.6% Publishing, Printing & Reproduction of Recorded Media, 4.6% Construction, 4.5% Information Technology, 3.6%
Other Tenants
Supply Chain Management, 3rd Party Logistics, Freight Forwarding, 12.4%
Food Products & Beverages, 2.6% Government Agency, 2.3%
Marine Offshore, Oil & Gas, 14.9%
Precision Engineering, Electrical and Machinery products, 18.2%
1.8% 1.7%
54.0% 46.0%
Note: Eightrium @ CBP = Eightrium @ Changi Business Park Source: Manager, DBS Vickers
In terms of revenue, the 26.3% revenue contribution from its Sponsor, Soilbuild Group Holdings Ltd. is significant for SB REIT and is primarily from the master lease of Solaris. We note that the property, which is in turn sub-leased to 3rd parties, has strong underlying occupancy rates of 94.9% as at 31 Jun’13. Tenants are established companies such as SPRING Singapore and MNCs like John Wiley & Sons and Autodesk Asia. Most of these tenants have shown a commitment to remain in Solaris, having taken up long leases and incurring significant capital expenditure in fitting out their space. Therefore, in our view, this mitigates against potential downside risks to earnings in the event that the master lease rolls off.
Telecommunication & Datacentre, 1.3% Education & Social Services, 1.3% Financial, 1.0% Pharmaceutical & Biological, 0.7%
Source: Manager, DBS Vickers
Long underlying land lease tenures. SB REIT’s initial portfolio has a long weighted average remaining land lease term of c.51years, offering stability to the portfolio. We note that this is the longest compared to the listed industrial S-REITs. According to DTZ, it also compares favorably to new developments from the Industrial Government Land Sales sites, which have shorter land tenures of between 22-30 years. SB REIT has a longer underlying land lease tenure compared to industrial REITs 51
SB REIT New Developments on iGLS Sites
22-30 34
Cambridge Industrial Trust
37
Cache Logistics Trust Sabana
39 40
AIMS AMP Capital
45
Mapletree Logistics Trust Ascendas REIT
46 48
Mapletree Industrial Trust 0
10
20
30
40
50
60
Source: Manager, DBS Vickers
Page 7
Company Focus Soilbuild Business Space REIT
High exposure to the business park space segment One of the key differentiating factors of SB REIT is its higher exposure to the business park space compared to the industrial S-REITs. Through its two business park properties in the initial portfolio - Solaris and Eightrium @ Changi Business Park, SB REIT will derive close to 43.2% of its portfolio value from business parks space, compared to a range of 7.9%20.6% for other listed industrial S-REITs. SB REIT’s exposure to business parks market vs. other Industrial S-REITs 50% 45%
Central (one-north, Science Park and Alexandra), they serve as major employment hubs at the fringe of major towns across Singapore. Business park properties in SB REIT portfolio- Solaris is located in an emerging hub at one-north near Central part of Singapore while Eightrium is located at Changi Business Park, which is one of the more established and vibrant hubs in the eastern part of Singapore. Based on our estimates, SB REIT will have a market share of close to 4% of total business park space in Singapore on an NLA basis. Business Parks occupies c4% of total industrial stock (as of 4Q12)
43.2%
40% 35% Multi-User Factory 23%
30% 25%
20.6%
20%
17.9%
Single User Factory 55%
15%
Warehouse 19%
SB REIT 4% Business Park, 4% Public 18%
7.9%
10%
AREIT 30%
Private 38%
MINT 7%
AAREIT 7%
5% 0% SB Trust
Ascendas REIT
Mapletree Industrial Trust
AIMS AMP Capital
* For Ascendas REIT, we have excluded the Science Park Properties, which if included will account for 36.7% of value Source: Manager, DBS Vickers
Relevance and long term sustainability in demand as Singapore heads towards a “knowledge-based” economy. The business park space started as a government led initiative to decentralise Singapore’s central business district (CBD) and provide space to emerging industries involved in technology and value-adding knowledge based activities. Given the continued growth of Singapore as a knowledge-based economy and value-added manufacturing hub in the region, we believe that the business park space offers sustainability in tenant demand and will remain relevant to the changing face of Singapore’s manufacturing sector as she continues to attract companies involved in high-value manufacturing to set up operations here. As such, we believe that SB REIT’s high weighting in the business park space will enable its portfolio to remain relevant and perform strongly in the medium term. Niche “office-like” industrial space. The business park space is a niche industrial segment. In terms of supply, as of 4Q12, the total amount of business park space is 16.7m sqft which, according to DTZ, accounts for only 4% of total industrial stock in Singapore. Located primarily in three main locations – the Western part of Singapore (Cleantech Park and the International Business Park), East (Changi Business Park) and
Page 8
Source: DTZ, Manager, DBS Vickers
Cheaper cost alternative with similar/superior building specifications a key driver for demand for business parks. Business park properties enjoy good connectivity and have building specifications which are similar to some offices in the CBD, making them an attractive alternative for qualifying users to relocate there. One of the main motivations for companies to relocate to a business park space is rental cost, which is generally lower and more stable compared to office space in the CBD. Rents of business park space have been c.52-53% below that of central office space over the past five years (2008-2012), which represents big cost savings for companies that do not need to be located in the CBD. As such, apart from businesses in the technology and value added manufacturing (ie, biomedical, media, infocommunications, electronics) which have been the traditional demand drivers for business park space, we have in recent years seen major financial institutions like banks (ie, DBS Bank, Standard Chartered, Citibank and Credit Suisse and Deutsche Bank) consolidating part of their middle-to-back office operations in the business parks, to enjoy this cost differential.
Company Focus Soilbuild Business Space REIT
and the Star Vista Mall (2012) near one-north, has improved the working environment and facilities at the various business parks, thus making it more vibrant and self-sustaining.
Historical demand and supply for business parks ' m sq f t Global Financial Crisis (2009)
2.5
2.1 2
1.7 1.5 1.4
1.5
Selected notable companies relocating to business parks
1.4
Companies
1.2
1.2 0.9
1
0.5
Eurozone Crisis (2012)
1.8
1.3
1.2
0.5
0.5
Ericsson
0.7 0.4
0.3
CISCO Systems
0.2 0
0.6
0
0 2005
2006
2007
2008
2009
2010
2011
2012
2013F 2014F 2015F
Demand for Private Business Park
Supply for Private Business Park
Available Supply
Pre-Committed Supply
British Telecom International SOS EMC Credit Suisse
Current location Thomson Road Robinson Road Various locations
Relocating to
Space
ONE @ Changi City
32,000
UE Bizhub East
110,000
UE Bizhub East UE Bizhub East ONE @ Changi City
45,000 20,000 106,000
ONE @ Changi City
315,000
Source: Manager, DBS Vickers
Source: DTZ, Manager, DBS Vickers
As of 2012, according to DTZ, the average monthly rental of business park space (islandwide) is S$3.80 psf, which is 65% below that of average office space in the CBD of S$6.30 psf. This is higher than the average 52%-53% spread seen since 2008, meaning that relocating from office to business park space continues to remain financially attractive and the trend is likely to be strong. As such, we believe that demand is likely to remain firm going forward and the rental differential between CBD office space and business park space might narrow in the medium term, implying upside for rents.
SB REIT’s business park assets have good characteristics and command a high rental yield. Business Parks in SB REIT portfolio - Solaris and Eightrium @ Changi Business Park are located in one-north and Changi Business Park respectively, which commands some of the highest rents in Singapore. Market rent at one-north is currently at S$5.00-5.50 psf, while Changi Business Park is commanding between S$4.50-S$5.50 psf currently, based on DTZ estimates. We also note that both Solaris and Eightrium stand out among competition within their respective micro-markets, with Solaris winning multiple awards from various professional industry organizations and its green innovations.
Historical rents of business parks vs. CBD 7.0
S $ psf 6.5
6.0 5.0
5.5 4.3 3.3
Business Parks and Rents across Singapore 65%
5.0
4.0
70%
6.3
5.9
3.6
3.9
4.1
3.8
60%
3.0
3.0 2.0
65%
55% 52%
50%
53%
52% 50%
1.0
45%
2008
2009
2010
2011
Office (Central)
2012
2013F
2014F
Business Park (Islandwide)
Spread (Office vs Business Park) RHS
Source: Manager, DBS Vickers
Critical mass; more supporting amenities further fuels demand for business park space in the future. In recent times, we have also noted high-profile relocations of established companies from the CBD offices into business park space, further highlighting the attractiveness and maturity of business park space as an alternative business location for users. In addition, the opening of supporting commercial amenities such as Changi City Point (late 2011) in Changi Business Park
Source: DTZ, Manager, DBS Vickers
one-north, a master-planned development located at Buona Vista, is divided into five zones where each zone is themed differently. Solaris is located in Fusionopolis zone at one-north, which is themed to be the centre for information, communication technologies (ICT), media, physical and engineering sciences. It is a multi-award winning
Page 9
Company Focus Soilbuild Business Space REIT
property with Green Mark Platinum Award supported by a strong tenant base, which include the likes of SPRING Singapore, Ubisoft, John Wiley & Sons and Autodesk. While there is a large amount of new supply completing in the coming few years at one-north, we note that pre-commitment levels are fairly high for most of the new buildings, which include built-to-suit properties for users. In addition, the 5-year master-lease tenure for Solaris shields SB REIT from any potential earnings volatility in the immediate term, in the midst of completing supply in the coming years. Location of Solaris within one-north
Eightrium @ Changi Business Park is one of the few multitenanted properties within Changi Business Park and is within short walking distance to the Expo MRT station and Changi City Point, making it a desirable location for users. The property has an occupancy rate of 95.3% as at 31 Jun’13 and houses a wide ranging tenant base, comprising MNCs like Nestle, Huawei, Barclays and Asus. We understand that most of these tenants have been at the property since its completion back in 2007. The property has a weighted average WALE (by gross revenue) of 2.9 years and we estimate it to have an average passing rent of S$3.99 psf / month, which is lower than the current market rent of S$4.50-S$5.00. Therefore, we believe that rental reversions are likely to be positive in the coming years. Location of Eightrium @ Changi Business Park in Changi Business Park
Source: DTZ, Manager, DBS Vickers
Incoming private supply at one-north Est. Completion
Biopolis 2013 2013
Development
Est. NLA (‘m sqft)
Precommitment (entire devt)
Ascendas Venture Pte Ltd P&G Singapore Innovation Centre
0.49 (bp)
0%
0.33 (bp)
100%
Source: JTC, DTZ, DBS Vickers
Biopolis 2013
Sandcrawler
0.23 (bp)
100%
2013
Nexus @one-north
31%
2014
Ascendas Fusion 5 Pte Ltd
0.16 (bp) 0.11 (off) 0.63 (bp) 0.05 (off) 0.06 (shop) 0.96 (bp) 0.12 (off) 0.01 (shop) 0.73 (bp) 0.12 (off) 0.01 (shop)
2015 2015
Futuris/Synthesis/ Kinesis JTC Corporation Mediapolis MediaCorp Pte Ltd
Vista Exchange 2013 The Metropolis Ho Bee
1.24 (off)
Note: (off) = office, (bp) = business park, (shop) =retail Source: Manager, various companies, DBS Vickers
Page 10
0%
Rental expiries for Eightrium implies potential positive rental reversions Lease Expiry by NLA 4.39 4.08
100% 90%
N/A 100%
80%
4.72
3.46
5.00 4.50
3.80
4.00
70%
3.50
60%
3.00 2.50
50% 35%
40% 30% 20%
31%
Expiring Rents
16%
19%
16%
10%
10%
2.00
2013
2014
2015
Source: Manager, DBS Vickers
2016
1.00 0.50
0%
0%
1.50
2017
2018
Company Focus Soilbuild Business Space REIT
Supportive Sponsor with real estate expertise The Sponsor of SB REIT is Soilbuild Group Holdings Ltd. (“Soilbuild Group”). Soilbuild Group is a leading integrated property group with c.40 years of experience and a long and successful track record in land bids, construction, development, leasing and managing a portfolio of residential and business space properties. Soilbuild Group has collaborated closely with JTC under the Developer Partnership Programme and leveraged on its design, build and lease/sell schemes as one of the leading private developers of quality business space. Notable projects include its maiden business park development Eightrium @ Changi Business Park, Solaris, West Park BizCentral for lease, as well as Tuas Connection, Kranji Linc, Senoko Food Connection for sale and lease. These cater to the business needs of both MNCs and SMEs. In the residential sector, it has developed both high-end and mid-market projects such as Leonie Parc View, The Centrio, Mandale Heights, Pinnacle 16, Fernhill Cottages and Meier Suites.
Soilbuild Group has an integrated real estate platform that spans from construction and development capabilities to lease management, asset management and fund management. By harnessing its construction capabilities and extensive network of specialised contractors, the Sponsor has also expanded its expertise into providing design and build, turnkey construction project services and project management consultancy for both private and public projects. As at Dec 2012, Soilbuild Group has a consolidated NAV in excess of $650m, which is spread over a portfolio of prime properties in residential and business spaces, offering close to 4m sq ft of business space for lease to the diverse space requirements of industrialists and businesses. The Sponsor’s interest in SB REIT is aligned through ownership of a 20% (post-greenshoe) stake in the REIT, as well as through a 100% ownership of the REIT Manager.
Soilbuild Group Holdings Business
Milestones
Source: Manager
Page 11
Company Focus Soilbuild Business Space REIT
Lease structure offers a balance of stability and growth Master lease agreements offer high degree of income certainty. We believe that SB REIT’s lease structure offers investors a high degree of income certainty and visibility. This is because SB REIT will have four out of seven properties of the initial portfolio leased back to the respective vendors on long term master leases with tenures ranging from 5–15 years. In addition, built-in rental escalations provide a steady growth profile over time. Based on our estimates in FYP13F-14F, SB REIT will derive 4243% of its net property income (NPI) from the master leases and the remaining 57-58% will be derived from multitenanted properties, which are subject to annual rental negotiations. Master Lease agreements contributes 42%-43% of NPI 60.0
S $'m
Weighted average lease expiry of 4.2 years. Backed by a majority of its income from master leases with long tenures, SB REIT will have one of the longest weighted average lease expiries (WALE) by rental income compared to the listed industrial S-REITs who are mainly focused in Singapore which range between 1.9 - 5.3 years. Only MLT has a longer WALE of 5.3 years, due to its long leases from properties in Japan/Korea. SB REIT WALE vs. Industrial REITs 6
y e ars
5
5.3
4.1
4
3.7
3.7
3.4
3
3.2 2.4 1.9
2 1 0
Annualised 3.9%
50.0
Source: Manager, various REITs, DBS Vickers
40.0 30.0 20.0 10.0 FYP13F Multi-Tenanted Properties
Annualised FY13F FY14F Master Lease properties (3rd parties)
Master Lease properties (sponsor)
Source: Manager, DBS Vickers
Implied rents on master leases appear fair compared to market rates. We understand that the implied gross rents of the master leases are fairly close to the property’s underlying rental income, but may still be discounted by as much as 15% from current market rates. We believe that this is fair, as the master lessees will be taking on tenancy risks (Solaris is subleased to other tenants), while the other three properties (NK Ingredients, COS Printers and Beng Kuang Marine) are used by the master-lessees, mainly for their own operational needs. In addition, the escalation clauses will enable SB REIT to continue enjoying rental upside in the medium term, thus closing the gap with market rent levels.
Details of SB REIT’s Master Lease agreements Properties Master Lessee Lease Term
Solaris SB (Solaris) Investment Pte Ltd
NK Ingredients
COS Printers
Beng Kuang Marine
NK IngredientsPte Ltd
C.O.S. Printers Pte Ltd
PICCO Enterprise Pte Ltd
5 Years
15 Years
10 Years
7 Years
Triple net lease
Triple net lease
Double net lease
Double net lease
S$16.8m
S$4.7m
S$0.9m
S$1.1m
S$4.75 psf/mth
S$1.70 psf/mth
S$1.45 psf/mth
S$1.38 psf/mth
S$5.00-5.50 psf/mth
S$1.80 psf/mth
S$1.43 psf/mth
S$1.45 psf/mth
-5% to -15%
-6%
1%
-5%
Rental Escalation
3.0% per annum
Security Deposits
12 months
4.5% every 2 years 12 months
4.0% every 2 years 12 months
2.0% per annum 12 months
24
N.A.
N.A.
N.A.
30%
8%
2%
2%
Lease Structure Fixed Annual Rent Initial Implied Gross Rent Market Rent Premium/(Discount) to market
Underlying sub-tenants Est. % of NPI (FY14)
Source: Manager, DBS Vickers
Page 12
Company Focus Soilbuild Business Space REIT
Growth Drivers
SB REIT’s portfolio WALE (by NLA and GRI)
Backed by long term master leases, we forecast SB REIT to deliver an annualised distribution growth of 4.5% over FYP13F-14F. Growth initiatives come from a combination of organic and inorganic drivers such as: i)
47.5%
50% 45%
40.2%
40% 33.4%
35%
28.9%
30% 25% 20%
Annual step-ups from master leases
16.0% 14.7%
15%
8.2%
10%
In-built periodic rental hikes in the master leases are expected to provide a steady organic growth profile for SB REIT annually for four out of the seven properties in the initial portfolio, which form 42-43% of SB REIT’s net property income in FYP13F-14F. The master leases, which are (i) triple net lease structure (Solaris and NK Ingredients) means that the master lessees will bear ongoing property expenses such as land rent, property tax, insurance, day-to-day maintenance (cleaning, security, utilities, servicing of lifts and other M&E items). For master leases on double net lease structures (COS Printers and Beng Kuang Marine), the master lessees will be only responsible for ongoing property expenses as above, excluding land rent which has been paid up front. Master leases Property
Rent Type
Fixed Rent (S$’m)
Solaris
Triple Net
16.8
NK Ingredients
Triple Net
4.7
COS Printers Beng Kuang Marine
Double Net Double Net
Total Master Lease
0.9 1.1 23.5
Escalation
3.0% per annum 4.5% every 2 years 4.5% every 2 years 2.0% per annum -
% of net property income 30% 8% 2% 2% 42%
Positive reversions from its multi-tenanted properties
Properties that will be actively managed are Eightrium@ Changi Business Park, Tuas Connection and West Park BizCentral, which in total contribute 59-60% of SB REIT’s net property income in FYP13-14F. From a portfolio perspective, leases that will be expiring over the next two financial years consist of 2.8% and 14.7% of gross rental income (GRI).
6.2%
2.2% 2.8%
0% 2013F
2014F
2015F by NLA
2016F
>2016F
by GRI
Source: Manager, DBS Vickers
Looking at the individual properties, we note that underlying occupancy rates for Eightrium @ Changi Business Park, Tuas Connection and West Park Biz Central are high at 95.3%, 100% and 97.6% respectively. We note that rents for expiring leases over the next two years for Eightrium @ Changi Business Park and Tuas Connection are lower than current market level. Therefore, we expect SB REIT to be able to renew such expiring leases positively, resulting in higher gross rental revenues going forward. Similarly for West Park BizCentral, we estimate the current passing rent at cS$1.47psf/mth, which is lower than the recently achieved S$1.70 psf/mth for leases at the property and its surrounding areas. WALE of Eightrium @ Changi Business Park Lease Expiry by NLA 4.39 4.08
100% 90% 80%
Expiring Rents
4.72
5.00 4.50
3.80
3.46
4.00
70%
3.50
60%
3.00
50%
2.50 35%
40% 30% 20%
Source: Manager, DBS Vickers
ii)
5%
19%
16%
1.50
16%
10%
10%
2.00 1.00 0.50
0%
0% 2013
2014
2015
2016
2017
2018
Source: Manager, DBS Vickers
WALE of Tuas Connection 100%
Lease Expiry by NLA
90%
1.40
Expiring Rents 1.37
1.35
80% 70%
1.28
60%
1.20
1.19
40% 1.16
30% 20% 10%
1.25
47%
50%
1.30
21%
20%
1.17
1.15 7%
5%
0%
1.10 1.05
2013
2014
Source: Manager, DBS Vickers
2015
2016
2017
Page 13
Company Focus Soilbuild Business Space REIT
Fully utilising its GFA to its maximum allowable limit could see GFA increase by 24%
(iii) Acquisition growth prospects Acquisition pipeline offered by Sponsor; potential 49.1% hike in portfolio size. SB REIT, as a sponsored REIT, has been granted a right of first refusal (ROFR) by its Sponsor, Soilbuild Group Holdings, over future sales of all income producing real estate located in Singapore used primarily for business space purposes. We remain excited on SB REIT’s inorganic opportunities from its Sponsor’s ROFR pipeline. SB REIT stands to benefit from a visible pipeline of a further four industrial properties primarily located in the central and western part of Singapore. In total, we could see a further growth of c2.3m sq ft in additional space or an increase of up to 72% in GFA. SB REIT Pipeline Assets Sponsor ROFR Type Properties Waterfront 5-storey light industrial building Waterview iPark Westview
7-storey light industrial and a singlestorey amenity 3 blocks of 7-storey flatted factory and a single-storey amenity centre 9-storey light industrial ramp-up building
Total Current Portfolio % increase
GFA (‘000 sqft) 326 575 1,031 404 2,336 3,233 72%
Source: Manager, DBS Vickers
Development potential through maximizing unutilized GFA within its portfolio. Apart from inorganic growth opportunities available from its Sponsor, based on our analysis, the current built-up GFA of its portfolio is 3.2m sq ft, which based on our estimates, is c.25% below the maximum allowable built-up GFA (per 2008 Master Plan). This implies that a further c.0.8m sq ft of additional GFA can be extracted within their portfolio. However, given the existing master lease arrangements, we believe that actual realisation of this potential will likely take time, as the manager will need the tenant’s consent to start such work. In addition, we believe that more capital and further feasibility studies will be needed to ensure the efficient execution of plans.
Property
Eightrium @ Changi Business Park Solaris Tuas Connection West Park Biz Central 2 Pioneer Sector 1 9 Kian Teck Crescent 38 Tuas View Square Total
Current GFA (‘m sqft) 0.21
Current Plot Ratio (x) 2.5
Maximum Allowable Plot Ratio (x) 2.5
Increase In GFA (‘m sqft) nm
% Increase
0.55 0.61
6.5 0.8
6.5 1.4
0.43
0% 71%
1.41
2.5
2.5
-
0%
0.31
0.5
1.0
0.26
83%
0.06
1.0
2.5
0.08
142%
0.07
1.4
1.4
0.02
0%
3.23
-
-
0.08
25%
Source: Manager, SLA, DBS Vickers
Debt-funded headroom for acquisition. SB REIT’s estimated gearing of c29% and its non-credit rated status means that its gearing will be capped at 35%, implying a potential to fully debt fund c.S$70m worth of acquisitions. Given the relative bite-sized nature of industrial properties, this headroom should be sufficient for SB REIT to acquire one or two industrial properties. While there is no firm plan to obtain a credit rating at this point, if SB REIT eventually does, it will be empowered with more financial flexibility, and see its debt funding capacity increase to S$250m on 45% gearing (based on loan covenants) and up to S$700m (assuming a 60% gearing cap). This will enable SB REIT to undertake a more aggressive stance towards acquisitions. Debt funding capacity (non-rated and rated) 1,200 1,000
S $'m 944.5
60% gearing: S$700m headroom
800 45% gearing: S$250m headroom
600 400
35% gearing: S$75m headroom
200
275.5
0 Total Assets
Source: Manager, DBS Vickers
Page 14
0%
Total Debt
Company Focus Soilbuild Business Space REIT
Background and Strategies SB REIT is a Singapore real estate investment trust (“REIT”) established with the principal investment strategy of investing on a long-term basis, directly or indirectly, in a portfolio of income-producing real estate used primarily for business space purposes in Singapore, as well as real estate-related assets. The investment strategy must be adhered to for at least three years.
The key objectives are to provide unitholders with regular, stable distributions and long-term growth in DPU and NAV, while maintaining an appropriate capital structure. This can be achieved through active asset enhancement strategies, acquisition growth strategy, capital and risk management strategy, development strategy and divestment strategy.
Summary of SB REIT Growth Strategies Strategy
Remarks
Asset management strategy
The Manager intends to work closely with the Property Manager to improve rentals while maintaining high occupancy through, among others, identifying and restructuring leases and master leases including contractual step-up provisions, strengthening tenant and sub-tenant relationships, monitoring rental arrears, renewing tenant mix, monitoring costs and selective asset enhancement works to increase GFA for assets with under-utilised plot ratio.
Acquisition growth strategy
The Manager will source for and pursue acquisition opportunities that provide attractive cashflows and accretive yields to enhance unitholders’ returns and has potential for future income and capital growth. It intends to leverage on the Sponsor’s network, expertise, experience and knowledge of the business space market in Singapore when sourcing for opportunities. These can be from right of first refusal from the Sponsor or third party acquisitions. The investment criteria for evaluating acquisition opportunities include impact on distributions, location, lease expiry profile, asset enhancement potential, building and facilities specifications, tenant composition, land lease maturity as well as security deposits to commensurate with tenant credit worthiness.
Capital and risk management strategy
The Manager will maintain a robust balance sheet, optimize a mix of debt and equity in financing acquisitions and development projects, diversify its funding sources, optimize SB REIT’s capital structure and cost of capital within borrowing limits and adopt appropriate interest rate hedging strategies to ensure its ongoing cost of debt capital remains competitive. It will also consider opportunities to raise additional equity capital through issue of new units provided the REIT has an appropriate use for the proceeds.
Development Strategy
SB REIT intends to selectively undertake developments to ensure they are enhancing the value of the existing portfolio. These can include built-to-suit developments which are significantly less risky with tenant pre-commitments upfront and long master leases. In undertaking development activities, the Manager will consider development, construction and leasing risks as well as overall benefits. The REIT intends to adhere to the 10% development limit imposed under the Property Funds Guidelines.
Divestment Strategy
Non-performing assets could be considered for sale to free up or recycle capital for redeployment towards higher yielding growth opportunities when appropriate.
Source: Manager
Page 15
Company Focus Soilbuild Business Space REIT
Key Risks Sponsor-related risk. SB REIT is highly dependent on master leases by the Sponsor for rental payment with 30% of FY14 forecast NPI. Any adverse change in the Sponsor’s master leased properties or loss in underlying tenants may result in the loss of rental income and affect distributions to unitholders. Potential surrender of land to authorities. Portions of land at Eightrium @ Changi Business Park and COS Printers are within the railway protection and safety zone. Hence, certain activities may need the prior approval of Land Transport Authority of Singapore before they can be carried out. Parts of the boundary of Tuas Connection and West Park BizCentral are also affected by lines of road reserve. These portions are to be set aside and surrendered free of encumbrances to the State when development/redevelopment takes place or road construction/improvement is carried out by the Land Transport Authority. All REITs are required to pay upfront land premium. Wef 1st January 2013, JTC requires the purchaser of properties under a JTC lease to pay JTC, prior to completion of the sale, an upfront land premium equivalent to the balance of the JTC lease term. Prior to this ruling, the purchaser pays yearly rentals instead. This would impact Eightrium @ Changi Business Park, Solaris and Tuas Connection, which may serve as a strong deterrent to future buyers of the properties, should SB REIT decide to dispose of any of these assets. Increased competition from other business park properties. The properties, especially business parks, may face increased competition from other properties. There is a large supply pipeline that will be completed and available for rent between 2013 and 2015, and this may impact SB REIT’s business park properties in retaining its tenants (or subtenants) and the rentals might weaken as a result. Government policy – imposing seller’s stamp duty for industrial properties. In January 2013, for the first time in history, the Singapore government imposed a seller’s stamp duty on industrial land equivalent to 15%, 10% and 5% of the sale price for properties that are held for one year, two years and three years respectively. This makes it less flexible for SB REIT to adjust its portfolio mix on a near term basis. Furthermore, there is no assurance that the Singapore government will not introduce additional measures to stabilize the Singapore industrial property market.
Page 16
JTC holds the ROFR to all properties under a JTC lease. JTC has the right to buy the relevant property should the owner decide to sell the property which affects all of SB REIT’s properties except Beng Kuang Marine, that is subject to a State lease. As the policy is relatively new, there is no certainty or clarity as to how JTC will implement it and it may potentially have an impact on SB REIT’s ability to acquire properties or dispose of its assets which are under JTC lease. Rights of first refusal of NK Ingredients. NK Ingredients Pte. Ltd., being the Master Lessee of NK Ingredients has a right of first refusal over NK Ingredients (subject to JTC’s prior right of first refusal to purchase NK Ingredients). If SB REIT intends to sell the property in the future, it will have to be offered first to NK Ingredients. Thus, this arrangement might discourage potential buyers of this property. Rising interest rates might have a negative impact on distributions. SB REIT’s debt facilities will not be hedged, which means that the REIT could be subject to rising interest rates risks. As the global economy faces inflationary pressure, interest rates could rise, leading to potentially higher costs of borrowing. However, this is expected to be largely mitigated by the manager, which is looking to hedge 50%-75% of its total interest costs into fixed rates.
Company Focus Soilbuild Business Space REIT
Trust Structure Soilbuild Business Space REIT (“SB REIT”) is a Singapore REIT established with a principal investment strategy to invest in a portfolio of income producing real estate used primarily for business space in Singapore as well as real estate assets.
The Manager of the SB REIT is SB REIT Management Pte. Ltd. is a wholly-owned by Soilbuild Group, the Sponsor. The property manager, SB Property Services Pte Ltd. is also a wholly-owned subsidiary of the Sponsor.
Structure of SB REIT
Unitholders
Ownership of Units
SB REIT Management Pte. Ltd (Trust Manager)
Management Fees & Other Fees
Distributions
Soilbuild Business Space REIT
Fund & Asset Management Services Ownership of Assets
Acts on behalf of Unitholders
Trustee Trustee Fees
Net Property Income
Property Management Fees
SB Property Services Pte. Ltd (Property Manager)
The Properties Property Management
Source: Manager
Page 17
Company Focus Soilbuild Business Space REIT
Key Management Team The Manager of SB REIT is SB REIT Management Pte Ltd (Manager). The CEO of the Manager is Mr. Shane Hagan. Other key members of the management team includes Mr. Kelvin Chow Chung Yip as CFO, Mr. Roy Teo Seng Wah as COO, Mr. Russell Ng Keh Yang as Head of Investment/Investor Relations and Mr. Fendy Wijaya as Senior Analyst.
With over 50 years of real estate experience across the management team, they have an extensive track record in sourcing, acquiring and in the operations of industrial properties and in REIT management in Singapore. Their indepth industry knowledge, established relationships and operational expertise in the industrial sector will be a competitive advantage when sourcing for new acquisitions or executing on various asset enhancement/operational strategies in order to optimize value to unitholders.
Key Management Team Name
Position
Experience
Mr. Shane Hagan
Chief Executive Officer
As CEO, Mr. Shane Hagan is responsible for strategic planning, the overall dayto-day management and operations of SB REIT. He will work with the Board to determine the strategic direction of the REIT, as well as working with other members in the investment, asset management, financial, legal and compliance teams to meet the stated investment strategy and strategic directions of the REIT. Mr. Hagan has more than 17 years of experience in the real estate industry. He was CFO at Mapletree Commercial Trust Management Ltd from Dec 2010-Nov 2012 and was responsible for all finance and accounting, tax and treasury matters. From Jun 2010-Dec 2010, he was Group Financial Controller with Mapletree Investments and from May 2009-Jun 2010, he was CFO with LippoMapletree Indonesia Retail Trust Management. Mr. Hagan holds a Bachelor of Commerce and Administration (Accounting and Finance) from Victoria University of Wellington and is a Chartered Accountant with the ICA of NZ.
Mr. Kelvin Chow
Chief Financial Officer
As CFO, Mr. Kelvin Chow will be responsible for applying appropriate capital management strategy, including tax and treasury, accounting and finance matters, overseeing the implementation of SB REIT’s business plans, fund management activities and financial condition. Mr. Chow has more than eight years of experience in the real estate industry. He was responsible for all finance, accounting, tax and treasury matters as Financial Controller at Cambridge Industrial Trust Management Ltd from Oct 2012-Nov 2012, as Finance Director of Invista Real Estate Investment Management Ltd from Aug 2012-Sep 2012 and as CFO of Estadia Capital Pte Ltd from June-July 2010. From Sep 2008-Feb 2010, he was SVP at OUE. From Mar 2004-July 2007, Mr. Chow was with Ascendas Group assisting with financial and management accounting, as well as setting up private equity funds and from July 2007-Sep 2008, he was with Allco (Singapore) Ltd, in charge of financial and accounting matters. Mr. Chow holds an MBA from Universitas 21 Global and is a fellow of ACCA.
Page 18
Company Focus Soilbuild Business Space REIT
Key Management Team (continued) Name
Position
Experience
Mr. Roy Teo
Chief Operating Officer
As COO, Mr. Roy Teo is in charge of the asset management team, responsible for formulating business plans to maximise SB REIT’s rental income. He will ensure that the asset management team works closely with the Property Manager to maximise rental income and to minimise operating expenses, without compromising the marketability of the assets. His job scope includes analysing and recommending asset enhancement initiatives. Mr. Teo has over 13 years of experience in the real estate industry. He was Cohead of Business Development and Investment and then Head of Logistics Portfolio of Ascendas Fund Management from Mar 2005-Sep 2012. He was with Keppel Logistics Pte Ltd as Asst Manager of Business Development from Jan 2004-Mar 2005 and was responsible for the regional business development activities and prior to this; he was responsible for all accounting, finance and taxation activities at Keppel Logistics. Mr. Teo holds a Bachelor in Applied Science from Oxford Brookes University and is an affiliated member of ACCA.
Mr. Russell Ng
Head of Investment and Investor Relations
Mr. Russell Ng is the Head of Investment and Investors Relations. He is responsible for overseeing the investment function including identifying, researching, evaluating potential acquisitions and related investments with a view to enhancing SB REIT’s distribution and capital growth potential or divestments. In his role as Head of Investors Relations, he is responsible for facilitating communications with unitholders and maintaining communications such as continuous disclosures and transparent communications with unitholders and the market. Mr. Ng has more than 10 years of experience in the real estate industry. After obtaining a Bachelor of Commerce (Accounting) and Bachelor of Applied Finance from Macquarie University, Sydney, he held roles in various financial institutions which serviced the property sector in Australia from 2004-2006. From Dec 2006-Jun 2009, he was a fund analyst with Goodman Asia where he was responsible for formulating the fund’s annual strategy performance and projections. From Oct 2009-Oct 2012, he held various positions with Mapletree Logistics Trust Management Pte Ltd, including Senior Manager of Investments where he was responsible for business development and new investments across Asia Pacific.
Mr. Fendy Wijaya
Senior Analyst
Mr. Fendy Wijaya is Senior Analyst and will be responsible for providing analytical support to the team on financial and operational performance of the portfolio as well as projections. Mr. Wijaya was the portfolio analyst for LMIRT Management Pte Ltd from Aug 2009-Nov 2012. He holds a Bachelor of Economics and Finance from Royal Melbourne Institute of Technology.
Source: Manager
Page 19
Company Focus Soilbuild Business Space REIT
Board of directors Name Mr. Chong Kie Cheong
Position Chairman and Independent Non-Executive Director and Audit Committee Member
Experience Mr. Chong has more than 30 years of experience in the financial industry, having held senior appointments in investment banking, international banking and finance and directorships in banks in the region. He was previously the Managing Director and Head of Group Institutional Financial Services at United Overseas Bank Ltd, and Senior Executive Vice President of Investment Banking at United Overseas Bank Ltd. Prior to that he was at DBS, where he held various positions, namely Assistant Vice President of Investment Planning, Vice President/Assistant Vice President of Corporate Planning, Senior Vice President of International and Planning, Executive Vice President of International Banking, Managing Director and Head of Institutional Banking, Managing Director and Head of Regional Integration Centre, Finance Director, Managing Director and Joint Head of Investment Banking. Mr. Chong was the Director of Singapore Petroleum Company Limited from 1990 to 1997. Mr. Chong holds a Bachelor of Social Sciences (Economics, Honours) from the University of Singapore.
Mr. Benedict Andrew Lim Independent Non-Executive Wee Yong Director and Audit Committee Chairman
Mr. Lim has more than 17 years of experience in the real estate industry. He has held senior level appointments across the entire real estate value chain ranging from construction management, property development and management, investments, asset management, fund management, risk management, compliance management and corporate general management. Mr. Lim is currently Director, Head of Investments for Global Capital & Development, an investment Joint Venture company between Mubadala and Khazanah, investment companies of the Abu Dhabi and Malaysia governments respectively and associate professor at UniSIM University. Prior to this, Mr. Lim had held senior management positions in Hewlett Packard Singapore (Sales) Pte Ltd, ING Real Estate Investment Management Pte Ltd, Mapletree Investments Pte Ltd and Jones Lang La Salle Property Consultants Pte Ltd from Aug 2006-Feb 2011. He was also President of Asset Management of Mapletree Investments Pte Ltd and was in charge of Singapore assets under management which included Vivocity and the precursor project to Mapletree Business City. Mr. Lim has also worked at Jones Lang LaSalle, DBS, and Obayashi Corporation. Mr. Lim holds a Bachelor of Engineering in Civil & Structural Engineering from Nanyang Technological University and a Master in Business Administration and a Master of Science in Real Estate from the National University of Singapore.
Page 20
Company Focus Soilbuild Business Space REIT
Board of directors (continued) Name Mr. Michael Ng Seng Tat
Position
Experience
Independent Non-Executive and Mr. Ng has been in the real estate industry for over 23 years. He is currently Group General Manager of United Industrial Corporation Limited and Audit Member Committee Singapore Land Limited where he manages the diversified real estate investments and development projects of the United Industrial Corporation Limited and its subsidiaries. Previously Mr. Ng was Managing Director of Savills Singapore from 2005-2010. Prior to Savills, he was the Managing Director of Hamptons International in 2001 where he subsequently led a management buyout of the Singapore office before merging the operations with Savills Singapore in December 2004. He was also a founding shareholder of Huttons Real Estate, a successful local housing agency. Mr. Ng. Has also worked at COSCO Singapore and Richard Ellis. Mr. Ng holds a Bachelor of Science (Honours in Estate Management) degree from the National University of Singapore.
Mr. Lim Chap Huat
Non-Executive Director
Mr. Lim is a co-founder of the Sponsor with more than 35 years of experience in the construction and property development business. He charts the Sponsor’s strategic direction, business planning and development and oversees its operations, management of projects and succession planning. Apart from this, Mr. Lim has been involved in all key aspects of the operations and business of the Sponsor to ensure quality at planning, design and implementation levels, including the oversight of the tendering and management processes of construction and development projects. He has also established a network of relationships with developers, customers, consultants and architects within the real estate industry. He has been the Group Managing Director of the Sponsor since 2001, and also serves on the board of all of its subsidiaries, including the Manager. Mr. Lim holds a Technician Diploma (Civil Engineering) from the Singapore Polytechnic. He is active in community service and currently serves as the Chairman of the Chong Pang Community Club Management Committee. In recognition of his contributions to the community, Mr. Lim was conferred the Pingat Bakti Masyarakat (Public Service Medal) and the Bintang Bakti Masyarakat (Public Service Star) by the President of the Republic of Singapore in 2003 and 2009 respectively.
Mr. Ho Toon Bah
Non-Executive Director
Mr. Ho is an executive director of the Soilbuild Construction Group Ltd from January 2013. Prior to that, he was an executive director of the Sponsor from June 2009 to May 2013, where he supported the strategic growth of the Sponsor’s operations, and drove the development of its business strategies. Before joining the Sponsor, Mr. Ho held various management positions in the banking industry, including Standard Chartered Bank as, variously, Senior Manager for Branch Banking and Direct Sales, General Manager for Mortgages and Auto, General Manager for Wealth, General Manager of SME Banking and Head of Consumer Banking in Indonesia. His last appointment was as Head of Consumer Banking in Malaysia with Standard Chartered Bank. Mr. Ho is also an independent director of Europtronic Group Ltd. Mr. Ho holds a Bachelor of Business Administration from the National University of Singapore. He is also a Chartered Financial Analyst.
Page 21
Company Focus Soilbuild Business Space REIT
Board of directors (continued) Name Ms. Lim Cheng Hwa
Position Non-Executive Director
Experience Ms. Lim joined the Sponsor as the Group Financial Controller in 2007 and was promoted to Director of Capital and Investment Management in 2010. She oversees the Capital and Investment Management Division handling all financial, accounting, tax and treasury matters, business and investment development, corporate communications, human resources and administration, as well as investor relations of the Sponsor. Ms. Lim has been an executive director of the Sponsor since 2011, and also serves on the board of certain of its subsidiaries. Ms. Lim has more than 17 years of experience, having served in finance departments of various listed companies. Prior to joining the Sponsor, she served as an accountant and senior accountant in L&M Group Investments Limited from 1995-1999. She served as a financial controller in MTQ Corporation Limited from 1999-2007. Ms. Lim holds a Bachelor of Accountancy (Honours) from the Nanyang Technological University.
Source: Manager
Page 22
Company Focus Soilbuild Business Space REIT
Organisation Structure of the REIT Manager
Board of Directors
Mr Chong Kie Cheong (Chairman and Independent Non-Executive Director and Audit Committee Member) Mr Benedict Andrew Lim Wee Yong (Independent Non-Executive Director and Audit Committee Chairman) Mr Michael Ng Seng Tat (Independent Non-Executive Director and Audit Committee Member) Mr Lim Chap Huat (Non-Executive Director) Mr Ho Toon Bah (Non-Executive Director) Ms Lim Cheng Hwa (Non-Executive Director)
Chief Executive Officer Mr Shane Hagan
Chief Operating Officer
Chief Financial Officer
Mr Roy Teo Seng Wah
Mr Kelvin Chow Chung Yip
Head of Investment and Investor Relations
Senior Analyst Mr Fendy Wijaya
Mr Russell Ng Keh Yang
Source: Manager, DBS Vickers
Page 23
Company Focus Soilbuild Business Space REIT
Fee Structure
S-REIT Manager Fees as a % of Total Property Value 1.2%
SB REIT’s fees are lower than peers. SB REIT’s fees are among the lowest for industrial REITs. Its fee structure is highly aligned to unitholders’ interests. It will take 10% of distribution income as base management fees and 25% of the y-o-y difference in DPU as performance fees. Other fees include trustee fees, acquisition and divestment fees, as well as property management fees.
Areit
1.0%
AiT 0.8%
FCOT Kreit CMT
0.6% Suntec 0.4%
100% fee in units. The Manager has elected to receive 100% of the property management, lease management base and performance fees in units in FY13 and FY14. Based on our estimates, SB REIT’s fees payable as a percentage of total property value is approximately 0.48% and as a percentage of gross revenue are 7.6% and 8.0% annualized in FY14 and FY15.
Preit
FCT SGReit
CRCT
CCT
MLT
Cambridge
MINT Cache ASHT
PCRT MCT
0.2%
CDLHT
ART FEHT
SB REIT
MGCCT
0.0%
Source: Various Companies, DBS Vickers
Fees and charges in relation to SB REIT Fee Type Management Fee
Payable to
Payment Mode
Description
Manager (or its
Cash/Units
Base Fee
nominee)
10.0% per annum of the Annual Distributable Income. Performance Fee 25.0% of the y-o-y difference in DPU (calculated before accounting for the Performance Fee) multiplied by the weighted average number of Units in issue for such financial year. The Performance Fee is payable if the DPU in any financial year exceeds the DPU in the preceding financial year. For the Forecast Period 2013 and the Projection Year 2014, the Manager has elected to receive 100.0% of the Base Fee and 100.0% of the Performance Fee in the form of Units.
Trustee Fees
Trustee
Cash
The Trustee’s fee shall not exceed 0.1% per annum of the value of the Deposited Property, subject to a minimum of S$15,000 per month. The actual fee payable will be determined between the Manager and the Trustee from time to time, and is presently charged on a scaled basis of up to 0.02% per annum of the Deposited Property. The Trustee will also be paid a one-time inception fee as may be agreed between the Trustee and the Manager, subject to a maximum of S$60,000.
Acquisition Fee
Manager
Cash/Units
A 1.0% fee is applicable to i) the acquisition price of any real estate purchased by SB REIT, plus any other payments in addition to the acquisition price in connection with the purchase of the real estate, ii) the underlying value of any real estate in relation to an acquisition of any SPV or holding entity which holds real estate, iii) the acquisition price of any investment by SB REIT, in any debt securities of any property corporation or other SPV owning or acquiring real estate.
Divestment Fee
Page 24
Manager
Cash/Units
A 0.5% fee is applicable to i) the sale price of any real estate sold or divested, ii) the underlying value of any real estate-related assets sold or divested, whether directly or indirectly through SPVs held by SB REIT, iii) the sale price of any investment by SB REIT in any debt securities of any property corporation or other SPVs owning or acquiring real estate. Any payment to third party agents or brokers in connection with the disposal of any assets of SB REIT shall be paid by the Manager to such persons out of the Deposited Property or the assets of the relevant SPV, and not out of the divestment fee received or to be received by the Manager.
Company Focus Soilbuild Business Space REIT
Fee Type
Payable to
Payment Mode
Description
Development
Manager
Cash/Units
A development management fee of 3.0% of total project costs of <$100m
Management Fee
incurred in Development Projects undertaken and managed by the Manager on behalf of SB REIT within the limits of the Property Funds Appendix (which currently allows a REIT to commit no more than 10.0% of its deposited property to development and investment in uncompleted property developments). Development Project means a project involving the development or redevelopment of land, or buildings, or parts thereof on land which is acquired, held or leased by SB REIT but does not include refurbishment, retrofitting and renovations, save for works that result in additional GFA. No acquisition fee shall be paid when the Manager receives a development management fee for a Development Project.
Lease Management
Manager
Cash/Units
Fee and Lease Renewal Commissions
A lease management fee of 1.0% per annum of Gross Revenue of each property is payable to secure a renewal of a tenancy. A Lease Renewal Commissions of i) 0.5 month’s gross rent inclusive of service charge, for securing a tenancy of three years, or pro-rates based on a tenancy of six months or more but less than three years, ii) one month’s gross rent inclusive of service charge, for securing a tenancy of five years, or pro-rated based on a tenancy of more than three years but less than five years, and subject to a commission of not more than 1.5 months gross rent inclusive of service charge for securing tenancies of more than five years. The Manager will not receive a fee for securing a tenancy of less than six months. For as long as Solaris and is leased back to the Sponsor and/or its relevant subsidiaries under a master lease arrangement, no Lease Management Fee or Lease Renewal Commissions will be payable in relation to such Properties. The Manager has elected to receive 100% of the Lease Management Fee in units over FYP13-14.
Property management Property fee
Cash/Units
Manager
The Property Manager is entitled to a property management fee of 2.0% per annum of Gross Revenue of each property. For as long as Solaris is leased back to the Sponsor and/or its relevant subsidiaries under a master lease arrangement, no property management fee will be payable in relation to such Properties. The Manager has elected to receive 100% of the Lease Management Fee in units over FYP13-14.
Marketing Services
Property
Commissions for new Manager
Cash
The Property Manager charges the following Marketing Service Commissions: (a)
leases
One month’s gross rent inclusive of service charge, for securing a tenancy of three years:
(b)
An amount pro-rated, based on a tenancy for three years as per (a), for securing a tenancy of six months or more but less than three years;
(c)
Two months gross rent includes of service charge, for securing a tenancy of five years;
(d)
An amount pro-rated, based on a tenancy for five years as per (c), for securing a tenancy of three years but less than five years;
(e)
An amount pro-rated, based on a tenancy for five years as per (c), for securing a tenancy of more than five years, to a maximum of three months gross rent inclusive of service charge;;
The Property Manager will not receive a fee for securing a tenancy of less than six months. If a third party secures a tenancy, the Property Manager will still receive the marketing services commissions provided that such commissions shall be used to pay the commissions of the third party agent. For as long as Solaris is leased back to the Sponsor and/or its relevant subsidiaries under a master lease arrangement , no marketing services omissions for new leases will be payable in relation to Solaris.
Page 25
Company Focus Soilbuild Business Space REIT
Fee Type
Payable to
Payment Mode
Description
Project management
Property
Cash
The Property Manager is entitled to a property management fee of 2.0% based on
fee
Manager
the following for any development, re-development, refurbishment, retrofitting, and addition and alternation or renovation works to the relevant property: (a)
where construction costs are S$2m or less, a 3% fee of construction cost
(b)
where construction costs exceed S$2m but do not exceed S$12m, a fee of 2.15% of the construction costs or S$60,000, whichever is higher
(c)
where construction costs exceed S$12m but do not exceed S$40m, a fee of 1.45% of the construction costs or S$258,000, whichever is higher, where construction costs exceed S$40m but do not exceed S$70m, a fee of 1.4% of the construction costs or S$580,000, whichever is higher
(d)
where construction costs exceed S$70m but do not exceed S$100m, a fee of 1.35% of the construction costs or S$980,000, whichever is higher
(e)
where the construction costs exceed S$100m, a fee to be mutually agreed by the Manager, the Trustee and the Property Manager
Reimbursable
Property
amounts
Manager
Cash
In addition to fees, the property manager will be fully reimbursed for certain costs as follows: Reimbursable Employment Costs. The trustee shall reimburse the salary of the employees of the Property Manager (approved by the manager) engaged solely for site supervision of the properties. Such costs will be part of an annual business plan and budget approved by the Manager or otherwise agreed between the Trustee and Manager Reimbursable Advertising Costs. The trustee shall reimburse cost of advertising and promotion of leasing for the property provided prior approval of the Manager has been obtained. Reimbursable Customer Costs. The trustee shall reimburse cost of customer care incurred by the property manager in relation to tenants of the property provided prior approval of the Manager have been obtained Project Management Expenses. The trustee, upon the recommendation of the Manager, shall reimburse the Property Manager for costs incurred for the provision of projection management services.
Others
Property Manager Cash
West Park BizCentral – Maintenance Fee. The property manager shall provide a comprehensive operational and maintenance service and is entitled to a fixed S$75,000/mth fee with an annual increase of 3.0%. Any amounts above this are borne by the Property Manager. This arrangement will be in force for a fixed term of five years, after which it will cease and the same arrangement applicable to the other Properties would then apply to West Park BizCentral.
Others
Trustee (paid by
Cash
West Park BizCentral Fee – Car Park Management Services. The property manager
Property
shall operate and maintain the car park and pay the Trustee a monthly licence fee
Manager)
of S$40,000 with annual increase of 5.0%. This arrangement will be in force for a fixed term of five years, after which it will cease and the same arrangement applicable to the other Properties would then apply to West Park BizCentral.
Source: Manager, DBS Vickers
Page 26
Company Focus Soilbuild Business Space REIT
Financials – Income Statement Steady annualised 3.9% growth in net property income. SB REIT’s net property income is expected to grow by an annualised 3.9% over FYP13F-15F due to escalation clauses built into its master lease arrangements and positive rental reversions forecasted for its multi-tenanted properties. This is on the back of an annualised 4.4% increase in gross revenue. Contribution to gross revenues (FYP13F-15F) 80.0
S $'m
Annualised 4.4%
70.0 60.0 50.0 40.0 30.0 20.0 10.0 FYP 2013 (9 months) Multi-Tenanted Properties
Annualised FY13
FY14
Master Lease properties (3rd parties)
FY15F
Master Lease properties (sponsor)
Source: DBS Vickers
Contribution to net property income (FYP13F-15F) 70.0
properties. These fees will consist mainly of (i) property management fees – which is based on 2% of gross revenue of its property and (ii) lease management fees, which is based on 1% of the gross revenue of its property (except for Solaris and West Park BizCentral where the sponsor has waived lease management fees for the two properties). For the remaining three multi-tenanted properties, we have assumed an operating margin of between 58% for Eightrium @ Changi Business Park and 72% for Tuas Connection and 80% for West Park BizCentral. The higher margin for West Park BizCentral is higher due to the fixed maintenance fee payable to the property manager. Management fees – pegged to distributable income. The management and performance fees of SB REIT are structured to incentivize the Manager to grow revenues and keeping costs in check, which is well aligned with the interest of the unitholders. Annual base fees are paid based on 10% of distributable income. In addition, the Manager will only be paid an annual performance fees that is based on 25% of the growth in DPU in a financial year compared to the preceding year. For FY13F, no performance fees will be payable. For FY14F, performance fees will be calculated against the annualized DPU in FY13F.
S $'m
The manager has elected to receive 100% of its fees in Units for FYP13F and FY14F and we have assumed it to be from FY14F onwards.
Annualised 3.9%
60.0 50.0 40.0 30.0 20.0 10.0 FYP13F Multi-Tenanted Properties
Annualised FY13F
FY14F
Master Lease properties (3rd parties)
FT15F
Interest cost estimated to be c.3.25% (2.6% cash interest cost). Interest cost is expected to remain relatively stable. SB REIT has secured financing facilities at an average all in rate of 3.25% pa, inclusive of upfront fee. The Manager is proposing to fix 75-100% of the cost with 2, 3 and 4-year interest rate swaps.
Master Lease properties (sponsor)
Source: DBS Vickers
Net property income contribution SB REIT will derive c.42%43% of its net property income from master leases (Sponsor and 3rd parties). Net property income margins of 80.4-80.8% over FYP13F– 14F. Due to master lease arrangements with four out of seven properties, SB REIT will only need to incur the property management fees payable to the property manager for these
Non-tax deductible expenses. Largely consists of management fee payable to the manager (100% of fees paid in units) and the amortization of upfront fees for loan disbursement. Distribution income – 100% till 2014. SB REIT’s policy is to distribute 100% of its taxable income and tax-exempt income up to 31 Dec 2014. Thereafter, SB REIT will have a distribution payout of at least 90% of its distributable income. Distributions will be made quarterly.
Page 27
Company Focus Soilbuild Business Space REIT
DBSV Assumptions FY Dec (S$ m) Revenues by Asset** Eightrium @ Changi Business Park Solaris Tuas Connection West Park BizCentral NK Ingredients COS Printers Beng Kuang Marine Gross Revenues Revenue contribution: Master leases (sponsor) rd Master lease (3 parties) Multi-tenanted properties
Remarks Multi-tenanted Master Lease Multi-tenanted Multi-tenanted Master Lease Master Lease Master Lease
FYP13 (9 months)
Annualised FY13F
FY14F
FY15F
6.9 12.5 7.7 16.8 3.5 0.7 0.8 48.9
9.1 16.7 10.3 22.4 4.7 0.9 1.1 65.2
9.6 17.1 11.2 23.5 4.7 0.9 1.1 68.0
10.0 17.6 12.1 25.4 4.9 0.9 1.1 72.1
26% 10% 64%
26% 10% 64%
25% 10% 65%
25% 10% 65%
4.8% 2.3% 8.9% 4.8% 0.0% 0.0% 2.0%
4.7% 3.0% 8.1% 8.3% 4.5% 4.0% 2.0%
Y-o-Y Growth (%) Eightrium @ Changi Business Park Solaris Tuas Connection West Park BizCentral NK Ingredients COS Printers Beng Kuang Marine Net Property income by Asset* Eightrium @ Changi Business Park Solaris Tuas Connection West Park BizCentral NK Ingredients COS Printers Beng Kuang Marine Net Property income (NPI)
4.1 12.3 4.9 13.6 3.4 0.7 0.8 39.8
5.5 16.4 6.5 18.1 4.6 0.9 1.1 53.0
5.7 16.7 7.0 19.1 4.6 0.9 1.1 55.0
6.1 17.2 7.7 20.9 4.8 0.9 1.1 58.8
NPI contribution from : Master leases (sponsor) rd Master lease (3 parties) Multi-tenanted properties
31% 12% 57%
31% 12% 57%
30% 12% 58%
30% 12% 58%
99.0% 100.0% 100.0%
99.0% 100.0% 100.0%
99.0% 100.0% 100.0%
99.0% 100.0% 100.0%
99.5% 100.0% 100.0% 100.0%
99.5% 100.0% 100.0% 100.0%
99.5% 100.0% 100.0% 100.0%
99.5% 100.0% 100.0% 100.0%
98.6%
98.6%
98.6%
98.6%
Occupancy Rate Assumptions Eightrium @ Changi Business Park Solaris Tuas Connection West Park BizCentral NK Ingredients COS Printers Beng Kuang Marine
*To derive the net property income, we wouldl like to highlight that expenses for master leases are largely property management fee pegged to 2% of gross revenues and lease management fees (2% of revenues for non-sponsor properties). ** We have assumed that the annual reversions in master leases will start from Apr every year Source: DBS Vickers
Page 28
Company Focus Soilbuild Business Space REIT
Margins Trend
Income Statement (S$ m) FY Dec
Gross revenue
2012A
2013F
2014F
2015F
55
65
68
72
(19)
(12)
(13)
(13)
Net Property Income Other Operating expenses Other Non Opg (Exp)/Inc
36
53
55
59
(6)
(6)
(6)
(7)
0
0
0
0
Net Interest (Exp)/Inc
(9)
(9)
(9)
(9)
0
0
0
0
Property expenses
Exceptional Gain/(Loss) Net Income
20
38
40
43
Tax
0
0
0
0
Minority Interest
0
0
0
0
Preference Dividend
0
0
0
0
Net Income After Tax
20
38
40
43
Total Return
20
38
40
43
Non-tax deductible Items
9
8
9
10
Net Inc available for Dist.
29
46
49
52
Growth & Ratio Revenue Gth (%)
38.9
18.7
4.3
6.0
N Property Inc Gth (%)
40.4
48.4
3.8
6.8
Net Inc Gth (%)
(53.4)
90.1
3.5
7.4
Dist. Payout Ratio (%)
100.0
100.0
100.0
100.0
Net Income Margins (%)
65.1 36.7
81.3 58.8
80.9 58.3
81.5 59.1
Dist to revenue (%)
53.2
71.2
71.4
72.7
Managers & Trustee’s fees to sales %)
11.6
8.6
9.3
9.9
ROAE (%)
3.2
6.0
6.1
6.5
ROA (%)
2.2
4.1
4.2
4.5
ROCE (%)
3.2
5.1
5.2
5.5
Int. Cover (x)
3.2
5.2
5.4
5.7
Net Prop Inc Margins (%)
S$ m
100 90 80 70 60 50 40 30 20 10 0
86.0% 81.0% 76.0% 71.0% 66.0% 61.0% 2011A
2012A
2013F
Net Property Income
2014F
2015F
Net Property Income Margin %
Largely driven by organic growth. 42% of the income is pegged to master lease arrangements with rental escalations
Interest cost to remain fairly stable at 3.32%
Pro-forma numbers do not include master lease arrangement and West Park Biz Central which was completed in 2012
100% payout ratio assumed
Source: Company, DBS Vickers
Page 29
Company Focus Soilbuild Business Space REIT
Balance Sheet (S$ m) FY Dec
Aggregate Leverage 2012A
2013F
2014F
2015F
935
937
939
941
30.0%
Other LT Assets
0
0
0
0
25.0%
Cash & ST Invts
1
2
5
10
Inventory
0
0
0
0
Debtors
0
1
1
1
15.0% 10.0%
Investment Properties
Other Current Assets
0
0
0
0
936
941
946
952
ST Debt
0
0
0
0
Creditor
0
0
0
0
Other Current Liab
8
8
8
8
275
275
275
275
14
14
14
14
639
644
649
655
0
0
0
0
936
941
946
952
Total Assets
LT Debt Other LT Liabilities Unit holders’ funds Minority Interests Total Funds & Liabilities Non-Cash Wkg. Capital
(8)
(7)
(7)
(7)
(274)
(272)
(269)
(265)
Current Ratio (x)
0.1
0.4
0.8
1.3
Quick Ratio (x)
0.1
0.4
0.8
1.3
29.4
29.3
29.2
29.2
Net Cash/(Debt) Ratio
Aggregate Leverage (%)
Source: Company, DBS Vickers
Page 30
20.0%
2011A
2012A
2013F
2014F
Gearing of c.29%, which is expected to remain stable
2015F
Company Focus Soilbuild Business Space REIT
Cash Flow Statement (S$ m) FY Dec
Distribution Paid / Net Operating CF 2012A
2013F
2014F
2015F
Pre-Tax Income
30
38
40
43
1.0
Dep. & Amort.
0
0
0
0
0.8
Tax Paid
0
0
0
0
0.7
Associates &JV Inc/(Loss)
0
0
0
0
0.5
Chg in Wkg.Cap.
0
(1)
0
0
0.3
Other Operating CF
7
6
7
8
37
43
47
51
Net Operating CF Net Invt in Properties
(891)
(2)
(2)
(2)
Other Invts (net)
0
0
0
0
Invts in Assoc. & JV
0
0
0
0
Div from Assoc. & JVs
0
0
0
0
Other Investing CF
0
0
0
0
Net Investing CF
(891)
(2)
(2)
(2)
Distribution Paid
(22)
(46)
(49)
(52)
Chg in Gross Debt
280
0
0
0
New units issued
597
6
7
8
0
0
0
0
855
(40)
(41)
(44)
Currency Adjustments
0
0
0
0
Chg in Cash
0
1
3
4
4.5
5.5
5.8
6.2
(105.6)
5.1
5.5
5.9
Other Financing CF Net Financing CF
Operating CFPS (S cts) Free CFPS (S cts)
0.9
0.6 0.4 0.2 2012A
2013F
2014F
2015F
Minimal Capex assumed
Source: Company, DBS Vickers Source: Company, DBS Vickers
Page 31
Company Focus Soilbuild Business Space REIT
Valuation
Historical S-REIT Yield Spread vs 10 year Singapore bond
Given SB REIT’s visible income stream and regular payouts, we believe that DCF methodology is an appropriate valuation metric.
7.0%
6.0%
5.0%
Our DCF valuation is premised on a weighted average discount rate of 6.7%, assuming a risk free rate of 2.9% while current equity risk premium is pegged at 6.8% and a beta of 0.875. Using a near term potential target of 35% gearing for SB REIT, we arrive at a WACC of 6.7%.
4.0%
3.0%
2.0%
1.0%
0.0% Jan-05
As such, we derive a DCF backed fair value of S$0.87
Jan-06 Yield Spread
Jan-07
Jan-08
Jan-09
Historical Mean
Jan-10
Jan-11
Jan-12
Historical Mean (Ex Crisis)
Jan-13 -1 Std Dev
Source: DBS Vickers, Bloomberg Finance L.P
Discounted Cashflow Model EBIT Add Non cash charges Less Tax Provision Less Capex Add changes in Working Capital Total FCF to the Firm Terminal Value PV of FCF PV of Terminal Value Net Cash (Debt)
FYP13F
14F
15F
16F
17F
18F
19F
20F
21F
22F
35.6 0.0 0.0
48.7 0.0 0.0
51.7 0.0 0.0
54.8 0.0 0.0
56.2 0.0 0.0
57.6 0.0 0.0
59.1 0.0 0.0
60.4 0.0 0.0
61.2 0.0 0.0
62.0 0.0 0.0
(2.0) (1.3) 32.3 1,187
(2.0) (0.0) 46.7
(2.0) (0.1) 49.6
(2.0) (0.0) 52.8
(2.0) (0.0) 54.2
(2.0) (0.0) 55.5
(2.0) (0.0) 57.1
(2.0) (0.0) 58.4
(2.0) (0.0) 59.2
(2.0) (0.0) 60.0
388.5 618.6 (273.7)
Total Equity Value Total Shares over period Value per share
733.5 845 0.87
Risk Free Rate (Rf) Market Return (Rm) Beta (x) Cost of Equity (Ke) % of debt financing After-tax cost of debt WACC Terminal growth
2.9% 9.4% 0.88 8.6% 35% 3.4% 6.7% 1.8%
Source: DBS Vickers
Page 32
Company Focus Soilbuild Business Space REIT
SB REIT vs Peers. S-REIT peer comparison table (as of 25th Sept 2013) YE
Px $
Mkt Cap
Target
Total
DPU
Yield
Rec'd
(S$'b)
Return (%)
FY12A (Scts)
FY13F (Scts)
FY14F (Scts)
DPU Growth
FY12A (%)
FY13F (%)
FY14F (%)
P/Bk NAV (x)
Office FCOT CCT K-REIT
Sep Dec Dec
1.24 1.475 1.24
0.8 4 3.4
BUY HOLD HOLD
1.44 1.43 1.19
23% 2% 2%
6.7 8.5 7.7
8 8.1 8
9.1 8.1 8.1
14% 0% 1%
5.4% 5.8% 6.2%
6.5% 5.5% 6.5%
7.3% 5.5% 6.5%
0.87 0.91 0.96
Retail CMT CRCT FCT Croesus SPH REIT
Dec Dec Sep Jun Aug
1.975 1.40 1.845 0.88 0.97
7 1.2 1.5 0.4 2.3
HOLD BUY BUY BUY BUY
2 1.6 2.07 1.02 1.02
6% 21% 18% 25% 10%
9.5 9.5 10 -
10.1 9.4 11.1 7.6 2.6
11.3 9.9 11.5 7.8 5.3
12% 5% 4% 1% 1%
4.8% 6.8% 5.4% nm nm
5.1% 6.7% 6.0% 8.6% 5.2%
5.7% 7.1% 6.2% 8.9% 5.5%
1.28 1.19 1.19 0.98 1.13
Mixed MCT SGREIT SUNTEC MAGIC
Mar Dec Dec Mar
1.2 0.78 1.69 0.92
2.4 1.6 3.5 2.6
BUY BUY BUY BUY
1.35 0.84 1.78 1
18% 14% 11% 15%
6.5 4.4 9.5 5
6.7 4.8 9 5.4
8 5 9.2 6
19% 4% 2% 11%
5.4% 5.6% 5.6% 5.4%
5.6% 6.2% 5.3% 5.9%
6.7% 6.4% 5.4% 6.5%
1.15 0.89 0.82 1.05
Industrial A-REIT a-itrust MINT MLT CREIT Cache
Mar Mar Mar Mar Dec Dec
2.33 0.65 1.34 1.075 0.675 1.185
5.5 0.6 2.2 2.6 0.8 0.9
BUY HOLD BUY BUY HOLD BUY
2.27 0.75 1.37 1.16 0.7 1.33
3% 23% 9% 14% 11% 20%
13.7 4.6 9.2 6.9 4.8 8.4
13.8 4.8 9.4 6.9 4.9 8.7
14.6 4.9 10 7.5 5.3 9
6% 2% 6% 9% 8% 3%
5.9% 7.1% 6.9% 6.4% 7.1% 7.1%
5.9% 7.4% 7.0% 6.4% 7.3% 7.3%
6.3% 7.5% 7.5% 7.0% 7.9% 7.6%
1.20 0.98 1.22 1.17 1.06 1.23
Dec Dec Mar
1.255 1.64 0.795
1.6 1.6 0.7
BUY BUY HOLD
1.36 1.8 0.73
15% 16% -1%
8.7 11.4 4.2
8.7 10.9 5.5
9 11.3 6
3% 4% 9%
6.9% 7.0% 5.3%
6.9% 6.6% 6.9%
7.2% 6.9% 7.5%
0.95 1.00 1.08
Dec
0.92
1.5
BUY
0.97
12%
6
6.2
6.5
5%
6.5%
6.7%
7.1%
0.96
Healthcare P-Life Dec Religare Mar
2.38 0.81
1.5 0.6
HOLD BUY
2.15 0.94
-5% 26%
10.3 8
10.9 8.2
11.3 8.4
4% 2%
4.3% 9.9%
4.6% 10.1%
4.7% 10.4%
1.57 1.02
6.3%
6.3%
6.6%
1.06
Hospitality ART CDREIT AHTRUST FEHT
*Proforma (from listing date to year end)
Source: Bloomberg Finance L.P, DBS Vickers
Page 33
Company Focus Soilbuild Business Space REIT
Singapore Industrial Sector Outlook Singapore economy The Singapore economy has enjoyed a healthy annual growth of about 6% in the last decade. After a significant growth of 14.8% and 5.2% in 2010 and 2011 respectively, GDP growth slowed to 1.5% in 2012, amid a global economic slowdown. DBS economist projects GPD growth of 2.5% and 4% in 2013 and 2014 respectively. The two economic pillars in Singapore are manufacturing and financial & business services.
Supply of industrial space in Singapore is both from the private and public sector. According to DTZ, an estimated 87% of the total industrial space stock in Singapore is provided by the private sector while the public sector accounts for only 13%. The largest segment caters to the single user factory demand (54%), followed by multiple user factory (23%) and warehouse segment (19%). Business parks space accounts for only 4% of total industrial stock. Breakdown of industrial stock by Ownership and Segment
GPD Growth Y-o-Y %Chg 16 14 12 10 8 6 4
Source: DTZ
2 0 ‐2
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013e 2014e
Source: DTZ, DBS Vickers
URA Industrial Real Estate Classification Classification Factory
The manufacturing sector contributed 27% of Singapore’s total GDP in 2012 while the financial services sector accounted for a smaller 23%. While growth in manufacturing production remained relatively stable in 2012, some manufacturing clusters performed better, such as the transport engineering and biomedical manufacturing. The bulk of $16b worth of investment commitments into Singapore in 2012 was in the manufacturing sector, particularly in the electronics and chemical clusters. Breakdown of Investment Commitments
Warehouse
Business Park
Description Space used or intended to be used for industrial purposes, comprising buildings or parts of the buildings used for the manufacturing, altering, repairing, ornamenting, finishing, cleaning, washing, packing, canning, breaking-up or demolition of any article or its parts and the processing and treatment of minerals. Factory developments are further classified into i) singleuser – factory building that has a single occupier and is used for a purpose solely related to that occupier, ii) multiple-user – factory building that is capable of being strata divided and thus could be used by multiple users. Covered space used or intended to be used predominantly as storage area for raw materials, semifinished or finished goods. Areas for non-pollutive industries and businesses that engage in high-technology, R&D, high value-add and knowledge-intensive activities. Science parks are also classified as business parks, though their primary activity is R&D.
Source: DTZ
Source: Singapore Department of Statistics, DTZ
Page 34
Following the government’s curbs in the residential sector, investors and speculators turned their attention to the industrial sector, resulting in sharp hikes in rents and capital values. The authorities have taken steps to ensure a stable industrial space market. These include, putting in place various measures to prevent speculation, as well as making available ample supply of industrial land.
Company Focus Soilbuild Business Space REIT
Major Industrial Property Measures Measure
Description
Conditions for new Developments Under Industrial Government Land Sale (GLS) Programme (Jan 2012)
Development control-related measures were passed to ensure that building specifications of future industrial developments would better meet industrialists’ needs. Apart from measures related to building specifications, other key measures include the disallowing of strata subdivision for selective industrial GLS sites eg, near Mass Rapid Transit (MRT) as well as a cap on the minimum size for strata-titled industrial units.
Shorter Tenure for Sites in the Industrial GLS Programme for 1H12 (June 2012)
Shorter tenure for all sites in the 2H2012 Industrial GLS Programme from 60 years to a maximum term of 30 years. Industrial sites released are also mostly smaller in size to increase the government’s flexibility for land redevelopment and to improve affordability for industrialists.
Guidelines on Non-Exclusive and limited use for Religious Activities (June 2012)
Religious groups are only allowed to make use of industrial premises zoned Business 1 (B1) on a nonexclusive and limited basis. These industrial premises cannot be used exclusively for religious purposes at the expense of industrial activities. Usage is limited to certain days in a week and will occupy only the ancillary use quantum of the industrial premises zoned B1. Religious groups will be able to conduct some religious activities in industrial space, without compromising the primary function and character of industrial developments. Existing religious organisations that are using factory units for religious uses on an exclusive basis will be granted a 3-year grace period wef 12 June 2012 to comply with the conditions.
Continued Cap on the Tenure for Sites in the Industrial GLS Programme for 1H2013 (Dec 2012)
Ample land supply through GLS Programme to meet the needs of industrialists and to moderate land prices. The government continued to cap the land tenure for sites on the GLS Programme. Sites with shorter land tenures of about 22 years, targeted at SMEs, were also released. Successful bidders of selected sites will be required to build a minimum number of large factory units to cater to the needs of SMEs who need larger industrial spaces. The set of conditions for all B1 and B2 sites in the GLS Programme announced in Jan 2012 continued to be effective in the 1H2013 GLS list.
Imposition of Sellers Stamp Duty on Industrial Properties and Land (Jan 2013)
Wef 12 Jan 2013, the government has imposed a Sellers’ Stamp Duty (SSD) on industrial properties and land sold within three years of the date of purchase. SSD at 15% if property is resold within one year of purchase, SSD 10% within two years and SSD 5% within three years.
Revision of Payment Scheme for New Assignment Contracts for Third Party Facility Providers for JTCleased Sites (Jan 2013)
Wef 1 Jan 2013, the payment scheme for new assignment contracts for industrial buildings on JTC sites involving third party facility providers, such as property funds and REITs, has been revised to upfront land premium only for the remaining part of the lease term. Prior to this policy change, JTC allowed third party facility providers to pay based on a monthly land rental, if that was what the seller (assignor) was doing. The revision impacted directly on third party facility providers under the Sale and Leaseback Scheme. Third party facility providers under JTC’s Third party Build and Lease Scheme continues to have the option to pay either an upfront land premium or monthly land rental, although subsequent buyers of their industrial development are only limited to the upfront land premium scheme.
Source: DTZ
Page 35
Company Focus Soilbuild Business Space REIT
Business Parks Space As Singapore moves towards a more knowledge-based economy, demand for industrial space is also likely to evolve. Anticipation of this change resulted in the development of the first business park concept in the 1980s, that cater to serve as both companies’ headquarters as well as a hub for hi-tech and high value activities.
Business parks space, including science parks, total 16.7m sqft and account for about 4% of total industrial stock at present. These are spread over five key clusters islandwide – one-north, Mapletree Business City, Singapore Science Park, Changi Business Park, International Business Park and Cleantech Park.
Comparison between Business/Science Park and Factories/Warehouses Category
Business/Science Park
Factory and Warehouse
Zoning
Business Park Business Park – white
Business 1 and Business 2 B1 – White and B2 – White
Permitted Predominant Use
Generally non-production in nature but are characteristic of high technology and research-oriented industries. Include test laboratories, R&D, data and computer processing centres, as well as product design/ development.
Predominant uses cater to some non-production based industrial activities eg, e-business and media Only Type 1 e-businesses ie, provision of infocomm infrastructure /software application are allowed
Permitted Ancillary/ Secondary Uses
May include office, leisure and in-house medical facilities. Some restrictions on commercial uses.
Varies for single-user and multiple-user, secondary uses like canteens and showrooms must be in common areas. Stringent restrictions on commercial uses – Commercial uses like mini-mart, supermarket, medical clinic, restaurant, clubhouse, ATM rooms and banks are not allowed.
Use Control Quantum
A minimum of 85% of overall GFA will be for business park, of which a minimum of 60% will cater to predominant uses and a maximum of 40% for ancillary/secondary uses. A maximum of 15% of overall GFA of a business park development will be allowed for white uses, subject to approval from relevant authorities and land owners, white uses include office, retail, residential and hotel. Business park – white zones allow a larger white quantum; more than the 15% allowable in a business park zone. Minimum land area for a business park is 5ha, to ensure that the land is large enough to landscape and create a park-like environment. Within the business park, individual plots are to be demarcated to be developed. Emphasis on landscaping to ensure an attractive environment, quality building designs and the on-site provision of amenities.
A minimum of 60% of overall GFA will be for predominant uses and a maximum of 40% for ancillary/secondary uses. B1 – White and B2 – white sites can allow some commercial components for B1 and B2, subject to the minimum plot ratio achieved for B1/B2 use and relevant authorities’ approval.
Others
Source: DTZ
Page 36
No restriction on land area. Subject to nuisance as well as health and safety buffers.
Company Focus Soilbuild Business Space REIT
Location of Science and Business Parks
Source: DTZ, JTC, DBS Vickers
Page 37
Company Focus Soilbuild Business Space REIT
Demand and Supply The 5-year average has an annual demand 0.9m sqft, lower than average supply of 1.3m sqft over the same period. However, this was largely due to the economic downturn in 2009, where demand weakened significantly. Occupancy during this period ranged from 70% to 90%. The business park market is supported by the manufacturing sector, a key demand driver for industrial space, as well as the higher value add industries such as biomedical and ICT, professional, scientific and technical activities in the services sector.
In terms of rents, business parks rents have trended up slightly islandwide since 2011. Selected micro-markets such as one-north have rents ranging from $5.00-5.50psf/mth, while those at Changi Business Park are lower at $4.50-5.00psf/mth. This is significantly higher than that of science parks at $3.504.50psf/mth. Median Rents for Private Business Parks (S$psf/mth) 7 6 5
Over the next three years, a significant 3.1m sqft of supply is expected to be completed between 2013-2015. The peak of completions are expected in 2013 (1.3m sqft) and 2014 (2.1m sqft).
4 3 2 1
Annual Demand, Supply and Occupancy for Business Parks Space 2500000
100%
2000000
0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 1Q13 Islandwide IBP CBP MBC/Spore Science Park
Source: URA, DTZ
80%
20%
A major attraction of business parks space is the significant cost savings vis-a-vis prime office space. In addition, business park locations enjoy strong transport connectivity and offer a holistic work-play-live environment, enabling companies to attract ample labour resources for their operations.
0%
Comparison of Business Park and Office Rents (S$psf/mth)
1500000 60% 1000000 40% 500000 0 ‐500000 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013f 2014f 2015f Annual Supply (sf) LHS
Annual Demand (sf) LHS
Occupancy RHS
7 6
Source: URA, DTZ
5
DTZ believes that business parks rents should remain well supported as up to 67% of the new supply had been precommitted by single user built-to-suit facilities. Supply of Private Business Parks Developments in the Pipeline Completion Year 2013
Development/ Developer Sandcrawler
Planning Business Region Park Central one-north
Est NLA (sq ft) 232,600
Central
one-north
490,400
2013
Ascendas Venture
2013
P&G Intl Operations
Central
one-north
271,900
2013
Nexus @ one-north
Central
one-north
135,100
2013
Ascendas (Tuas)
East
CBP
166,400
2013
Rohde & Schwarz
East
CBP
112,600
2014
Ascendas Land
Central
SSP
696,100
2014
Ascendas Fusion
Central
one-north
516,400
2015
MediaCorp
Central
one-north
598,900
Source: DTZ, URA
Page 38
4 3 2 1 0 2003
2004
2005
2006
Business Park (islandwide) Office (Central Area)
Source: URA, DTZ
2007
2008
2009
2010
2011
2012
Business Park (CBP) Office (Outside Central Area)
Company Focus Soilbuild Business Space REIT
Annual Supply, Demand and Occupancy for Private Singleuser Factory (Islandwide)
Factory Overview The Concept and Fixed Price Tender was launched as part of JTC’s ongoing efforts to encourage private sector participation and promote an active industrial property market in Singapore. Soilbuild was the first private company to be awarded such a tender in 2008 for the construction of what would later be known as West Park BizCentral at Tanjong Kling Industrial Estate.
12
10
' m sq f t
96%
5-year Average Annual Demand: 6.1m sq ft 5-year Average Annual Supply: 5.9m sq ft
95%
3-year Average Annual Supply (Potential): 4.1m sq ft
8
6
91%
4
90% 89%
0
88% 2003
Single-user factories are largely low-rise detached and terraced buildings meant for a single occupier with built-to-suit and specialised industrial facilities. Majority of single-user factory space is located in the West Region (54%) of Singapore, followed by the North Region (19%) and East Region (13%). Single user factories typically feature a significant proportion of ground floor space, which is attractive to industrial users. Single User Factory Breakdown by Planning Region 140.0
93% 92%
2
Single-user factories
94%
2004
2005
2006
2007
2008
Annual Supply (LHS)
2009
2010
2011
2012
Annual Demand (LHS)
2013F
2014F
2015F
Occupancy (RHS)
Source: DTZ, URA, DBS Vickers
Future single-user factory spaces for lease are limited. There is about c.4.1m sqft of industrial space from awarded GLS sites without Provisional Permission/Written Permission. Most of these industrial spaces will likely be used as multi-user factory space, and DTZ estimates that majority of the single-user factory space within this category will likely be owner-occupied factory space.
' m sq f t Public
120.0
21.3
Private
100.0 80.0 60.0
102.9 4.0
40.0 3.7
20.0
4.7 12.6
25.7
3.0 13.5
Central Region
East Region
North East Region
-
Source: DTZ
39.9
North Region
West Region
Demand exceeds supply. According to DTZ, the 5-year average annual demand for private single-user factory was c.6.1m sqft, exceeding supply of c.5.9m sqft. Most completions over the past ten years were built-to-suit and owner-occupied, and those available for lease are relatively limited. The limited supply has ensured that occupancy remains high. As at Q4 2012, occupancy for private single-user factory space was 94.7%. Going forward, c.12.4m sqft of private single-user factory is expected to be completed from 2013 to 2015, with c. 6.7m sqft completing in 2013. Majority of the single-user factory space in the pipeline are owner-occupied, with limited space available for lease. Of total future supply, c.9.3m sqft (or 74%) is located in the West Region. In the appended chart are some noteworthy single-user factory completions in the pipeline.
Strong annual rental growth. The 5-year annual rental growth rate for private single-user factory space was 16.3%, which is an indication of the relative strength of demand for such factory space relative to supply even during the global financial crisis in 2009. As at Q1 2013, island wide private median rents were S$2.30 psf pm, representing a 26% increase over the previous peak in Q1 2009. Within the West Region, median single-user factory rentals for January and February 2013 were S$1.58 psf pm. Median Rents for Private Single-User Factory 2.50
SGD
2.00
1.50
1.00
0.50
0.00 2003
2004
2005
2006
2007
Isla ndw ide
2008
2009
2010
2011
2012 1Q 2013
We st Re gion
Source: URA, DTZ
Page 39
Company Focus Soilbuild Business Space REIT
Single-user factories in the pipeline Planning Region
Development / Developer ST Electronics (Info‐Software Systems) Pte Ltd Manufacture Element Pre Fabricate Pte Ltd Norsun Singapore Pte Ltd
Location
Estimated Year of Completion, NLA (sq ft) 2013 2014 2015
North East
Ang Mo Kio Street 65
538,200
West
Neythal Road
539,700
West
Google Asia Pacific Pte Ltd
West
Liu Fang Road/Wan Shih Road Jurong West Avenue 2/ Jurong West Street 23
470,200
Verdeland Pte Ltd Mead Johnson Nutrition (Asia Pacific) Pte Ltd
West
Penjuru Road
304,700
West
Tuas South Avenue 6
350,800
Evonik Methionine SEA Pte Ltd
West
Banyan Avenue
316,900
Jurong Shipyard Pte Ltd
West
Tuas South Boulevard
348,600
1,100,000
Source: URA, DTZ
Selected Government land sites awarded Zoning (Gross Plot Ratio)
Tenure (Years)
Mandai Link
B2 (2.5)
30
Soilbuild Group Holdings Ltd
494,000
Bukit Batok Street 23
B1 (2.5)
30
Soilbuild Group Holdings Ltd
331,000
Plot 3, Tampines Industrial Crescent
B2 (1.7)
30
Oxley Bliss Pte Ltd
582,000
Sunview Road
B2 (2.5)
30
Ascendial Pte Ltd
622,000
Plot 7, off Tuas South Avenue 12 Plot 25 and 27, off Tuas South Avenue 12 Plot 26, Tuas South Street 7
B2 (1.0)
23
Ben Ching Engineering Pte Ltd
40,000
B2 (1.0)
23
800 Super Holdings Ltd
96,000
B2 (1.0)
22
800 Super Holdings Ltd
89,000
Plot 31, Tuas South Street 6
B2 (1.0)
22
Kwong Lee Holdings Ltd
76,000
Plot 30, Tuas South Street 6
B2 (1.0)
22.5
Koh Brothers Building and Civil Engineering Contractor Pte Ltd
76,000
Plot 32, Tuas South Street 6
B2 (1.0)
22.5
SH Design and Build Pte Ltd
77,000
Location
Source: URA, DTZ
Page 40
Successful Tenderer
Estimated NLA (sq ft)
Company Focus Soilbuild Business Space REIT
Multiple-user factories Multiple-user factories differ from single-user factories in that they are capable of being strata subdivided and may be used by multiple-users. Majority of such factory space is located in the Central Region (47%), followed by the West Region (18%). Historically, multi-user factories are more sensitive to weaker economic conditions, as evidenced by the contraction of demand between from 6.9m sqft to 3.2m sqft between 2011 and 2012. Occupancy remained relatively stable, however, due to a corresponding fall in private supply in the same time period. As of Q4 2012, occupancy for private multiple-user factory space stood at 89.1%. c.10.5m sq ft of private multiple-user factory space is expected to be completed between 2013 and 2015, with the Central Region and North Region comprising 32% and 25% of future supply respectively. Completions in the West Region comprise c.14% of pipeline supply, which amounts to c.1.5m sqft of space. Majority of the supply coming online in the next two years are developments with small-sized industrial strata-titled units for sales, and developments for leasing remain relatively limited.
According to DTZ, the higher rents for multi-user factory space in the West Region are attributable to the clustering of manufacturing industries, the proximity to Jurong Port, as well as the higher quality completions in the region such as Tuas Lot and Westlink One. Multiple-User Factory Breakdown by Planning Region 60.0
' m sq f t
50.0
7.0
40.0 30.0
Public
20.0
9
4.6 12.7
2.1
2.3
9.1
9.2
18.9
Central Region
East Region
North East Region
North Region W est Region
Source: URA, DTZ
Median Rents for Private Multiple-User Factory S GD
2.00 92%
'm sq ft
8 7
1.8
10.0
2.50
Annual Supply, Demand and Occupancy for Private Multiple-User Factory (Islandwide)
Private
46.2
90% 5-year Average Annual Supply: 4.4m sq ft 5-year Average Annual Demand: 4.3m sq ft
1.50
88%
6
3-year Average Annual Supply (Potential): 3.5m sq ft 86%
1.00
5 84% 4 82%
3
0.50
80%
2
0.00 78%
1
2003
2004
2005
2006
2007
Islandwide 0
2008
2009
2010
2011
2012 1Q2013
West Region
76% 2003
2004
2005
2006
2007
Annual Supply (LHS)
2008
2009
2010
2011
Annual Demand (LHS)
2012
2013F 2014F 2015F Occupancy (RHS)
Source: URA, DTZ
Source: URA, ETZ
West Region rental growth relatively stronger. Despite being more sensitive to the economy at large, rents for private multiuser factories have grown steadily, achieving a 5-year average growth rate of 7.9%. Private multi-user factory rents in the West Region command a premium, with rentals averaging S$2.26 in 1Q 2013, 10% higher than the island wide average of S$2.00. Rental growth in the West Region has also been stronger – present rents are c.26% higher than its previous peak during Q3 2008, as compared to c.11% island wide.
Page 41
Company Focus Soilbuild Business Space REIT
Major Multiple-User Factories in the Supply Pipeline Development/Developer
Estimated Year of Completion; NLA (sq ft) 2013 2014 2015
Planning Region
Location
PLC 8 Development Pte Ltd
Central
North Spring BizHub
North
Pioneer Centre
West
Lavender Street Yishun Industrial Street 1/ Yishun Street 23 Pioneer Road North/ Soon Lee Drive
646,100 1,027,100 334,700
Oxley BizHub
Central
Ubi Road 1
397,800
Synergy @ KB
East
Kaki Bukit Road 4
458,300
Premier @ Kaki Bukit
Kaki Bukit Avenue 4
661,700 514,000
Central
Ang Mo Kio Street 62 Woodlands Avenue 12/ Woodlands Drive 64 Kallang Avenue
North
Gambas Avenue
472,700
West
Soon Lee Street
346,300
Link@AMK
North East
Primz Bizhub
North
CT Hub 2 Ark@Gambas Ispace
452,600 315,000
Source: URA, DTZ
Stack-up factories Recent years have seen the completion of multi-storey developments with ramp-up facilities, in order to optimise land use by going vertical and at the same time allowing ground floor convenience for businesses in the stack-up or ramp-up development. Stack- up differs from ramp-up in that each stack contains its own substation. Stack-up developments are typically six floors, and each stack typically has its own substation and vehicular ramp which provides access to all upper storey units. Average unit sizes range from 15,000 sqft to c.45,000-50,000 sqft, with the URA stipulating a minimum per floor space of 10,000 sqft for stack-ups. The two major stack-up factories in Singapore as of Q4 2012 are West Park BizCentral located in Pioneer Crescent with c.1.1m sq ft of NLA, and Woodlands Spectrum I & II located in Woodlands, with a combined NLA of 3.0m sqft. West Park BizCentral was completed in 2012, while Woodlands Spectrum I & II were completed in 2002 and 2004 respectively. There are no rental trends for stack-up factories because there is no URA classification available for such types, but the URA has reported that as of Q4 2012, median monthly multi-user rentals for West Park BizCentral was S$1.70 psf pm, while Woodlands Spectrum I & II rentals ranged from S$1.37 to S$1.70 psf pm.
Page 42
In contrast to stack-up developments, the minimum per floor requirement for ramp-up developments are 150 square metres. Many of recent developments were for sale, and had smaller unit sizes. Examples of multi-storey multi-user factory spaces include Tuas Lot (unit sizes starting from 2,200 sqft onwards with a ramp‐up facility), One Pemimpin (unit sizes averaged 1,200 sqft), 9@Tagore (units sizes were from 1,800 to 4,800 sqft) and A’Posh Bizhub (unit sizes averaged 1,500 sqft). Outlook for factories. Going forward, DTZ expects rising costs of production and tighter employment conditions to gradually soften demand for industrial space, as some industrialists consider relocating overseas. Most of the factory pipeline supply for 2013 and 2014 will be multi-user factory space, which will likely negatively impact the factory market. Notwithstanding, many of the upcoming factories are likely to be owner-occupied. As such, average annual median rents are expected to remain relatively stable in 2013, with potential upside of c.2.0%. DTZ forecasts that 2014 will see higher average rental growth of 3.0% due to the improvement of the economy.
Company Focus Soilbuild Business Space REIT
Warehouse Warehouse stock concentrated in the West Region. 99% of the 79.4m sqft of warehouse space is privately owned, and the West Region contains the most warehouse space, accounting for c.59% of island wide stock, as a result of the clustering of manufacturing industries, proximity to Jurong Port and Malaysia, as well as major expressways (Ayer Rajah and Pan Island Expressway). Demand strong over the past years. As a result of the pickup in the growth momentum of Asia’s logistics demand, demand for warehouse space significantly outstripped supply in 2010 and 2011, although this was dampened slightly in 2012 due to a slowdown in trade activities in China, as well as continued austerity in the Eurozone. Private warehouse occupancy for 2012 was 92.9%, a decline from 94.3% achieved in 2011.
Warehouse outlook. According to DTZ, Singapore’s status as a regional logistics hub makes for a positive outlook for private warehouse rents, with c.3.0% annual median rental growth for 2013 and 2014 respectively. Median Rents for Private Warehouse 2.50
S GD
2.00
1.50
1.00
0.50
0.00 2003
2004
2005
2006
2007
2008
Islandwide
Huge supply of warehouse space in the pipeline. c.10m sqft of warehouse space is set to be completed between 2013 and 2015, and majority of pipeline supply is concentrated in the West Region (81%). According to DTZ, a significant number of this supply is likely to be owner-occupied.
6 5
'm sq ft 5-year Average Annual Demand: 2.5m sq ft 5-year Average Annual Supply: 2.4m sq ft
3-year Average Annual Supply (Potential): 3.3m sq ft
2010
2011
Rental Growth Forecasts 2.50
SGD 1.85 1.91
2.20 2.24
2.31 2.00 2.04
1.96
2.10
1.50 2012
96% 94%
2013F
1.00
2014F
92% 4
90%
3
2012 1Q2013
Source: URA, DTZ
2.00
Annual Supply, Demand and Occupancy for Private Warehouse (Islandwide)
2009
West Region
0.50
88% 86%
2
Private Warehouse
84% 1
82%
0
Private Single-user Factory
Private Multi-user Factory
Source: DTZ
80% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013F 2014F 2015F Annual Supply (LHS)
Annual Demand (LHS)
Occupancy (RHS)
Source: URA, DTZ
Between 2011 and 2012, median rents of private warehouses grew 2.8% from S$1.80 psf to S$1.85 psf, supported by growth in the wholesale and retail trade, as well as improving trade conditions with major economies. As at Q1 2013, monthly median rents were S$2.00, 19% higher than its previous peak of S$1.68 psf in Q3 2008.
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Company Focus Soilbuild Business Space REIT
Property Description
Solaris Concept and Fixed Price Tender. Previously known as Fusionopolis Phase 2B, Soilbuild won a Concept and Fixed Price Tender by JTC in 2007 and completed the development of Solaris in Q4 2010. Under the terms of the tender, JTC sets a fixed price on the plot of land, and companies are invited to submit their proposed concept for the development. There were three bidders for the land. Solaris is a multi-user business park development comprising a 9-storey north tower and a 15-storey south tower, linked by an atrium. It is designed to house MNCs and corporates from the info-communications, media and science and engineering research and development industries. It is one of the few completed multi-user business properties in Fusionopolis, and at present it is the only business park development completed by a private developer in Fusionopolis. About 84% of the NLA (371,525 sqft) is business park space and another 15% is office space. There is also a total of 3,454 sqft retail space located on the first level of Solaris, mainly for F&B outlets. Unit sizes range from 1,500 sqft to 25,000 sqft. Fusionopolis, where Solaris is location, has emphasis on Infocomm Technology, Science and Engineering. Proximity and accessibility. Solaris is located near one-north MRT station on the Circle Line, as well as Buona Vista MRT station, which serves as an interchange for the Circle Line and East-West Line. It is also well-served by the Ayer Rajah Expressway and Pan Island Expressway. It is in close proximity to major research clusters and educational institutions, such as the National University of Singapore, Nanyang Technological University, Biopolis and Science Park I & II. Nearby amenities include Connexis & Symbiosis (Fusionopolis Phase 1). Emphasis on green design. Solaris was designed by Ken Yeang, a Malaysian-born architect well known for his emphasis on green architecture. Described as ‘the world’s leading green skyscraper architect’, he was listed as one of the ’50 people who could save the planet’ by UK newspaper The Guardian. Another notable development that he designed is the Singapore National Library located at Victoria Street, Singapore. As a result of his involvement, Solaris contains many features that have helped to improve the internal air circulation of the development, natural lighting, as well as heat absorption.
Page 44
1.5km ramp of greenery. The building is ringed by 1.5km ramp of greenery, which contributes to c.8,100 square metres of plants and greenery located within limits of its land area. It is worth noting that this is a feature that has been voluntarily adopted, and exceeds what is mandated in the URA’s Landscape Replacement Policy, which requires that developments within the Downtown Core of Singapore to provide greenery and landscape areas that are at least equivalent in size to the development site area. According to the Manager, this continuous ramp is one of the longest in the world. An additional effect of this ramp is that it serves to absorb some of the external heat, further reducing the amount of heat within the building and therefore energy costs. Green Mark accolade. Solaris won the BCA Green Mark Platinum Award in 2009, which is awarded to developments that have at least 30% energy savings based on energy efficiency measures and improvements that reduce cooling requirements. We understand that given this award, Solaris was awarded an additional 2% of GFA, amounting to c.1,200 square metres of floor space. Master Lease. Solaris will be master-leased to SB (Solaris) Investment Pte. Ltd, a subsidiary of the Sponsor. Under requirements from JTC, the initial lease term is five years from the completion date of the sale and purchase. Security deposits in the form of bank guarantees amounting to 12 months' rent will be held by SB REIT. Initial annual rent will be S$14.8 million, and rental escalation is set at 3.0% p.a. wef 1 April 2014, under requirements from JTC. The implementation of the master lease for Solaris is based on a condition set by JTC to assignment of the property. The Sponsor has also waived the lease and property management fee as the property management company is also a 100% owned subsidiary of the Sponsor. Award-winning design. Solaris received top honours at the Skyrise Greenery Awards held by the Singapore Institute of Architects and National Parks Singapore. It also clinched a Green Good Design Award for Architecture in 2010 – part of a series of globally recognised awards from the Chicago Athenaeum: Museum of Architecture & Design and the European Centre for Architecture Art Design, Gold (Overseas) in the Pertubuhan Akitek Malaysia Award 2011 and the Royal Institute of British Architects International Award 2012
Company Focus Soilbuild Business Space REIT
Solaris Address
1 Fusionopolis Walk, Singapore (138628)
Description
Two-tower business park development, with one 9-storey North Tower and one 15-storey South Tower linked by a covered atrium.
Land Tenure
(a) Leasehold of 30 years commencing on 1 June 2008 with a further term of 30 years and (b) leasehold of 28 years and five months commencing on 1 January 2010 with a further term of 30 years.
Zoning
Business Park – White 15*
Issue of CSC
29 September 2011
Building TOP
October 2010
Land Area (sqft)
83,248 (excl. subterranean space of 3,014 sqft)
Maximum Allowable Plot Ratio
6.5
Floor to Ceiling Height
Up to 6m
2
Floor Loading (kN/m )
2.5 to 16
GFA (sqft)
551,811
NLA (sqft)
441,533
Car Park Lots
292
Valuation by Colliers (S$’m)
290.0
Valuation by CBRE (S$’m)
293.0
Asset Value (S$’m)**
293.0
Occupancy Rate (%)
100%
Number of Sub-tenants
24
* Business Park White Sites are areas used or intended to be used mainly for business park operations and uses permissible under White zone as a mixed-use development. The quantum for the uses permissible under White zone shall not exceed the percentage of the total floor area specified in the Amendment Plan. In this instance, the total quantum of permissible White use shall not exceed 15% of the total floor area of the development.
**Based on the higher of two independent valuations Source: DTZ, Manager
Page 45
Company Focus Soilbuild Business Space REIT
Eightrium @ Changi Business Park Multi-user business park. Eightrium @ Changi Business Park is one of the first multi-user business park spaces within Changi Business Park. It is suitable for MNCs and SMEs in research development, high-technology and knowledge-intensive industries. Its east wing and west wings have a typical floor area of 17,000 sqft and 9,000 sqft respectively. Eightrium has a distinctive atrium, multi-layered gardens and rooftops that are suitable for product launches, corporate events and social interactions. Accessibility. Eightrium is located within walking distance from Singapore Expo. It is 8.5km from Changi Airport and 16.5km from the Central Business District. It is served by major highways MRT stations such as East Coast Parkway, Pan Island Expressway and Singapore Expo MRT station. The closest to Eightrium is Changi City Point. It is expected to benefit from the increase accessibility of Changi Business Park upon the completion of the Downtown Line and the extension to the Eastern Region Line.
Eightrium @ Changi Business Park Tenant Trade Mix (as of March 2013), by GRI Telecomm & Datacentre 15% Others 5% Marine Offshore, Oil & Gas 4% Information Technology 6% Food Products & Beverages 34%
Source: DTZ, Manager
Location of Eightrium
Growth of Changi Business Park as a “lifestyle hub”. Changi Business Park is one of the more mature business parks in Singapore, housing some of the world’s leading companies like Honeywell, Ultro Technologies, Xilinx and financial institutions like DBS Bank, Citibank, Credit Suisse and Standard Chartered. The opening of retail facilities like Changi City Point and Hotel Capri has improved the working conditions in the park, making it more self-sustainable. Stable tenant profile. All of Eightrium tenants bar one have been tenants since the first lease cycle. Key tenants include Nestle Singapore, Huawei International, Barclays Technology Centre and ASUS Technology. New University nearby. In addition to commercial and business park development, Singapore’s fourth university, the nearby Singapore University of Technology and Design, an institution of technological innovation, is scheduled to be completed in 2014. It will complement the R&D activities of Eightrium @ Changi Business Park in general. JTC has ROFR on sale during first 10 years. Under JTC’s terms for transfer of Eightrium from the Sponsor, SB REIT is prohibited from selling, transferring or assigning the property during the first 10 years from the date of signing of the SPA. Thereafter, in the event that it wishes to, however, JTC has the ROFR on the property.
Page 46
Source: DTZ
Education & Social Services 19%
Financial 17%
Company Focus Soilbuild Business Space REIT
Eightrium @ Changi Business Park Address
15A Changi Business Park Central 1, Singapore 486035
Description
Business park development with one 8-storey east wing and one 5-storey west wing interlinked by a 5-storey atrium.
Land Tenure
JTC leasehold 30+30 years wef 15 February 2006
Zoning
Business Park
Issue of CSC
25 September 2007
Building TOP
April 2007
Land Area (sqft)
85,640
Maximum Allowable Plot Ratio
2.5
Floor to Ceiling Height
Up to 6m
2
Floor Loading (kN/m )
5 to 10
GFA (sqft)
213,835
NLA (sqft)
117,285
Car Park Lots
132
Valuation by Colliers (S$’m)
101.0
Valuation by CBRE (S$’m)
97.0
Asset Value* (S$’m)
101.0
WALE (years)
2.9
Occupancy Rate (%)
95.3
Number of Tenants
11
*Based on the higher of 2 independent valuations
Source: DTZ, Manager
Page 47
Company Focus Soilbuild Business Space REIT
West Park BizCentral Concept and Fixed Price Tender. The land plot was the first to be released by the JTC under the Concept and Fixed Price Tender scheme. It contributes c.45% of the private stock of multiple-user factory in the Boon Lay planning area, and was awarded the BCA Green Mark Gold Award. Its unique design has made it a landmark in the surrounding area. West Park BizCentral is a high-tech ramp-up industrial development comprising a six-storey stack-up factory and an 11-storey hi-tech facility, with road frontages from both Pioneer Road and Tanjong Kling. It is home to major marine engineering, hi-tech manufacturing and assembly, energy and petrochemical-related industries. It is one of the first privately built stack-up factories in Singapore. The flexible configuration of the ramp-up factory allows for innovative uses of space while a vehicular ramp allows container truck access to upper stories providing tenants with “ground floor” convenience. The factory provides for numerous amenities including a central courtyard and a rooftop garden. Same specifications across units of all floors. All 49 stack ups have the same loading and specification. Each unit has direct access to its own dedicated parking lot, facilitating convenient loading and unloading. Furthermore, the 18-metre wide driveway with single loading that runs through the entire development ensures smooth traffic flow. Individual units are provided exclusive sub-stations from which tenants can procure electrical supply directly from Singapore Power. In our walk through the property, based on discussions with the property manager, we note that air-conditioning functions are not provided, but it is possible to fully air condition each unit such that the factory may be used as a semi-clean factory. Tenant profile. We understand that one of its tenants, Dyson, the international technology company specialising in the production of bladeless fans, which has rented most of the top floor of WestPark BizCentral, invested c.S$100 million in their space of c.5,000 square meters for the production of their
Page 48
digital motors, representing heavy capital commitment to the premises. Many tenants of West Park BizCentral are companies whose premises are located in surrounding areas that wish to expand their operations but do not have sufficient space within their own premises to do so. Other key tenants include DB Schenker, Hitachi Asia Limited, Gain City Best Electric Pte Ltd, and National-Oilwell Pte Ltd. Accessibility. West Park BizCentral is located in close proximity to Pioneer, Boon Lay and Joo Koon MRT stations. It is also easily accessible via major expressways such as Ayer Rajah Expressway, Pan Island Expressway. Key landmarks that are nearby are Jurong Port as well as the Tuas Checkpoint, which is one of the two connecting roads to Malaysia. West Park BizCentral Tenant Mix for March 2013 (by GRI) Supply Chain Management, 3rd Party Logistics, Freight Forwarding, 27.7%
Construction, 3.4%
Electronics, 4.6%
Fabricated Metal Products, 10.6% Food Products & Beverages, 1.7%
Marine Offshore, Oil & Gas, 10.8% Others, 19.8% Precision Engineering, Electrical and Machinery Products, 21.3%
Source: DTZ, Manager
Company Focus Soilbuild Business Space REIT
West Park BizCentral Address
20, 22, 24, 26, 28, 30, 32 Pioneer Crescent, Singapore 628555, 628557, 628559, 628561, 628563, 628565
Description
Multi-user 6-storey ramp-up factory
Land Tenure
JTC leasehold 30+30 years wef 1 August 2008
Zoning
B2
Issue of CSC
24 September 2012
Building TOP
December 2011
Land Area (sqft)
565,837
Maximum Allowable Plot Ratio
2.5
Floor to Ceiling Height
Stack‐up Factory: 3.9 to 9.0 Mezzanine: 3.5 Flatted Factory: 3.8 to 5.0
2
Floor Loading (kN/m )
Stack‐up Factory:15 Mezzanine: 5 Flatted Factory: 10
GFA (sqft)
1,414,600
NLA (sqft)
1,240,583
Car Park Lots
326
Valuation by Colliers (S$’m)
326.0
Valuation by CBRE (S$’m)
310.0
Asset Value* (S$’m)
326.0
Occupancy Rate (%)
97.6
Number of Tenants
45
*Based on the higher of two independent valuations
Source: DTZ, Manager
Page 49
Company Focus Soilbuild Business Space REIT
Tuas Connection
Tuas West Extension
Tuas Connection is a series of two-storey detached and semidetached modern factory units with dedicated private compounds designed for heavy engineering, supporting the oil & gas and marine industries, as well as the petrochemical and energy sectors. Exclusive layout. The compound layout is almost column-free, which provides wide production spaces that span 20 to 30 metres. Ceiling heights may go to as high as 12 metres, which allows five-tonne overhead cranes to be located within the factory. Floor loading capacity is up to 20.0KN/m2 and there are provisions to cater power supply of up to 1,500 KVA. The factories also have office space on the second storey and are equipped with their own dedicated driveways and parking facilities. Accessibility. Tuas Connection is located near key marine, oil & gas and other heavy industrial zones. It is also located near facilities such as Raffles Marina, Raffles Country Club and Tuas Amenity Centre. Tuas Connection is well-served by major arterial roads and transport networks such as the nearby Ayer Rajah Expressway, Pan Island Expressway and is located near to Tuas Checkpoint. The factories will also have better accessibility upon completion of Tuas-West Extension along the East West MRT Line in 2016. Key Tenants. The development was fully committed in 2008, and tenants include mainly those in the engineering and supporting the oil & gas and marine industries, as well as petrochemical energy sectors. Some noteworthy tenants include Daehan Steel, East Asia Power and Owens Corning.
Page 50
Tuas Connection
Source: LTA, DTZ
Trade Mix of Tenants
Precision Engineering, Electrical and Machinery Products, 39%
Constructions, 14%
Fabricated Metal Products, 16%
Marine Offshore, Oil & Gas, 32%
Source: DTZ, Manager
Company Focus Soilbuild Business Space REIT
Tuas Connection Address
1 to 10, 12, 14, 16, 18 & 20 Tuas Loop, Singapore 637336 to 637345, 637347, 637349, 637351, 637353, 637357
Description
Inclusive of fifteen 2-storey detached and semidetached factory united with dedicated private compound.
Land Tenure
JTC leasehold 43 years wef 1 October 2007
Zoning
B2
Issue of CSC
14 July 2010
Building TOP
September 2008
Land Area (sqft)
741,829
Maximum Allowable Plot Ratio
1.4
Floor to Ceiling Height
Up to 12m
2
Floor Loading (kN/m )
20
GFA (sqft)
607,994
NLA (sqft)
651,072
Car Park Lots
Nil. Tenants park within their private compound.
Valuation by Colliers (S$’m)
125.0
Valuation by CBRE (S$’m)
127.0
Asset Value* (S$’m)
127.0
WALE (years)
2.2
Occupancy Rate (%)
100
Number of Tenants
15
*Based on the higher of two independent valuations
Source: DTZ, Manager
Page 51
Company Focus Soilbuild Business Space REIT
NK Ingredients NK Ingredients is a property consisting of seven blocks of office, laboratory, warehouse, production facilities and associated structures. It is an integrated lanolin, lanolin derivative and cholesterol production facility capable of refining 10,000 tonnes of wool grease, the raw material for all lanolin products. The master lease is held by NK Ingredients Pte Ltd, which also has rights of first refusal (after JTC which holds the primary ROFR of all its leased properties) of the property, so long as NK Ingredients Pte Ltd or its related companies remain as tenants at NK Ingredients. The initial lease term is 15 years from the completion date of the SPA. Security deposits in the form of a bank guarantee equivalent to 12 months’ prevailing rent is held by the REIT. Initial annual rent is S$4.68m with rental
escalation of 4.5% every two years. We understand that c.35.6% of NK Ingredient’s GFA is rented out to third parties. Accessibility. The factory is accessible via the Ayer Rajah Expressway and Pan Island Expressway. It is also strategically located near the gateway of Jurong Island and proximity to Malaysia via the Tuas Checkpoint. Under-utilised plot ratio. According to management, the factory presently has an under-utilised plot ratio. Together with another under-utilised asset, COS Printers, the REIT estimates that it could potentially realise up to c.343,240 sqft of GFA through asset enhancement works or redevelopment initiatives to achieve the maximum allowable plot ratio. However management believes that any major redevelopment will not take place in the middle or near term, with NK Ingredients currently occupying the factory and holding a 15year master lease.
NK Ingredients Address
2 Pioneer Sector 1, Singapore 628414
Description
Seven building blocks comprising office, laboratory, warehouse, production areas, refinery and Plant & Machinery structures
Land Tenure
JTC leasehold 30+30 years wef 1 October 1986
Zoning
B2
Issue of CSC
15 July 1991 (Phase 1); 1 August 2007 (Phase 2)
Building TOP
July 1991 (Phase 1); August 2007 (Phase 2)
Land Area (sqft)
572,423
Maximum Allowable Plot Ratio
1.0
Floor to Ceiling Height
Up to 10.0m
2
Floor Loading (kN/m )
20
GFA (sqft)
312,375
NLA (sqft)
312,375
Car Park Lots
N/A
Valuation by Colliers (S$’m)
61.0
Valuation by CBRE (S$’m)
60.0
Asset Value (S$’m)*
61.0
Occupancy Rate (%)
100.0
Number of Tenant
1
*Based on the higher of two independent valuations
Source: DTZ, Manager
Page 52
Company Focus Soilbuild Business Space REIT
COS Printers COS Printers is a three-storey factory-cum warehouse building, located within Jurong Industrial Estate (Pioneer Planning Area). The building is equipped with two cargo lifts with part of the building being temperature controlled. The first and second storey production and warehousing areas have a floor loading of 15KN/sqm. Accessibility. The property is conveniently located as the bus stop along Jurong Road is within a 5‐minute walk. The property is also located close to the Joo Koon and Pioneer MRT Stations. It is also accessible by cars via the Pan Island Expressway and Ayer Rajah Expressway. The property is also located close to Jurong Island and Jurong Port.
Source: Manager
COS Printers is leased to C.O.S Printers Pte Ltd as the Master Lessee. The initial lease term is 10 years from the completion date of the sale and purchase. Security deposits in the form of cash or bank guarantees equivalent to 12 months’ prevailing rent is held by SB REIT. The initial annual rent is S$0.89 million with rental escalation of 4.0% every two years over the preceding year’s rent. The tenancy is a double net tenancy, as land premium was paid upfront by COS Printers Pte Ltd. Under-utilised plot ratio. According to management, the factory presently has an under-utilised plot ratio. Based on DBS Vickers estimates, the current plot ratio of 1.0 is below its maximum allowable plot ratio of 2.5 according to the URA Master Plan 2008. Together with another under-utilised asset, NK Ingredients, the REIT estimates that it could potentially realise up to c.343,240 sqft of GFA through asset enhancement works or redevelopment initiatives to achieve maximum allowable plot ratio. However management believes that any major redevelopment will not take place in the middle or near term, with COS Printers currently occupying the factory and holding a 10-year master lease.
Source: DTZ, Manager
Page 53
Company Focus Soilbuild Business Space REIT
COS Printers Address
9 Kian Teck Crescent, Singapore 628875
Description
3‐storey temperature controlled factory with warehouse
Land Tenure
JTC leasehold 30+19 years wef 1 August 1993
Zoning
B2
Issue of CSC
7 January 1997
Building TOP
N/A
Land Area (sqft)
56,774
Maximum Allowable Plot Ratio
2.5
Floor to Ceiling Height
Up to 4.8m
2
Floor Loading (kN/m )
Up to 15
GFA (sqft)
58,572
NLA (sqft)
58,572
Car Park Lots
N/A
Valuation by Colliers (S$’m)
11.0
Valuation by CBRE (S$’m)
10.8
Asset Value* (S$’m)
11.0
Occupancy Rate (%)
100.0
Number of Tenant
1
*Based on the higher of two independent valuations
Source: DTZ, Manager
Page 54
Company Focus Soilbuild Business Space REIT
Location of Beng Kuang Marine
Beng Kuang Marine Beng Kuang Marine is a warehouse facility with workers dormitory. Currently, the first and part of the second storey of the property are for warehousing usage. The remainder of the second, third and whole of fourth storey are used as dormitories. Under JTC’s and URA’s regulations, such conversions are only allowed for the purpose of housing the tenant’s own workers, either working on‐site or off‐site in the tenant’s facilities. Accessibility. Beng Kuang Marine is located at the heart of marine, shipyards, oil & gas clusters and near the future megaport at Tuas, which is slated for completion in 2022. It is accessible via Ayer Rajah Expressway and Pan Island Expressway.
Source: DTZ
Land rent paid upfront. Furthermore, all land rent has been paid upfront. There are no further expenses incurred for the REIT on this property. Beng Kuang Marine Address
38 Tuas View Square, Singapore 637770
Description
Part 3‐/ part 4‐storey detached factory with inhouse dormitory facility
Land Tenure
Leasehold for 60 years wef 30 October 1996
Zoning
B2
Issue of CSC
4 May 2010
Building TOP
November 1998
Land Area (sqft)
52,800
Maximum Allowable Plot Ratio
1.4
Floor to Ceiling Height
Up to 7m
2
Floor Loading (kN/m )
20
GFA (sqft)
73,737 (including 22% for dormitory use)
NLA (sqft)
73,737
Car Park Lots
Nil
Valuation by Colliers (S$’m)
15.0
Valuation by CBRE (S$’m)
14.5
Asset Value (S$’m)
15.0
Occupancy Rate (%)
100.0
Number of Tenant
1
*Based on the higher of two independent valuations
Source: DTZ, Manager
Page 55
Company Focus Soilbuild Business Space REIT
DBSV recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
Share price appreciation + dividends DBS Vickers Research is available on the following electronic platforms: DBS Vickers (www.dbsvresearch.com); Thomson (www.thomson.com/financial); Factset (www.factset.com); Reuters (www.rbr.reuters.com); Capital IQ (www.capitaliq.com) and Bloomberg (DBSR GO). For access, please contact your DBSV salesperson. GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Vickers Research (Singapore) Pte Ltd ("DBSVR"), a direct wholly-owned subsidiary of DBS Vickers Securities (Singapore) Pte Ltd ("DBSVS") and an indirect wholly-owned subsidiary of DBS Vickers Securities Holdings Pte Ltd ("DBSVH"). This report is intended for clients of DBSV Group only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSVR. It is being distributed in the United States by DBSV US, which accepts responsibility for its contents. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBS Vickers Securities (USA) Inc (“DBSVUSA”) directly and not its affiliate. The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBSVR, DBSVS, and/or DBSVH) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. DBSVR accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. DBSVH is a wholly-owned subsidiary of DBS Bank Ltd. DBS Bank Ltd along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. DBSVR, DBSVS, DBS Bank Ltd and their associates, their directors, and/or employees may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies. Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report. The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by DBSVR, DBSVS and/or DBSVH (and/or any persons associated with the aforesaid entities), that: (a) (b)
such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein.
Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report. DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively. ANALYST CERTIFICATION The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. As of 26 Sep 2013, the analyst and his / her spouse and/or relatives who are financially dependent on the analyst, do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities, directorships and trustee positions).
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Company Focus Soilbuild Business Space REIT
COMPANY-SPECIFIC / REGULATORY DISCLOSURES DBS Vickers Securities (Singapore) Pte Ltd and its subsidiaries do not have a proprietary position in the company mentioned as 1. of 24-Sep-2013 DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBS Vickers Securities (USA) Inc ("DBSVUSA"), a U.S.-registered brokerdealer, beneficially own a total of 1% or more of any class of common equity securities of the Soilbuild Business Space REIT, Keppel REIT, Croesus Retail Trust, Starhill Global REIT, Mapletree Greater China Commercial Trust, Cache Logistics Trust, Ascendas Hospitality Trust, AScott Residence Trust, Far East Hospitality Trust and 5% Interest for Soilbuild Business Space REIT, Croesus Retail Trust, Ascendas Hospitality Trust as of 26 Sep 2013.
2.
3.
Compensation for investment banking services: a)
DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBSVUSA have received compensation, within the past 12 months, and within the next 3 months receive or intends to seek compensation for investment banking services from the Keppel REIT, Croesus Retail Trust, Mapletree Commercial Trust, Mapletree Greater China Commercial Trust, Ascendas REIT, AScendas India Trust, MApletree Logistics Trust, Cache Logistics Trust, Ascendas Hospitality Trust, AScott Residence Trust, Far East Hospitality Trust, Religare Health Trust.
b)
DBSVUSA does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.
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