Outlook for Soilbuild Business Reit
It's been awhile since I spent some time reviewing my portfolio as majority of my time goes into acquiring new knowledge with regards to options trading in the US market. Recently, Soilbuild Business Reit sent a circular to me, hence I decided to spend some time catching up on the details of what's really happening. Soilbuild Business Reit is facing some tough time now with numerous tenants defaulting on them. Firstly, Technics Offshore Engineering Pte Ltd defaulted on their rent for 72 Loyang Way. 72 Loyang Way is a fully integrated facility comprising two blocks of three-storey and four-storey ancillary office, two high ceiling single storey production facility, blasting and spray painting chamber, 160 capacity workers dormitory and a jetty with 142 metres of sea frontage. This also meant that 72 Loyang is a specialised warehouse catered to a special group of tenant.
Photos taken from Annual Report 2016
Secondly, NK Ingredients defaulted on their rental as well. NK Ingredients is a property consisting of seven blocks of office, laboratory, warehouse and 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 entire manufacturing facility is fully automated and coordinated by a state-of-the-art computerised control system. Unfortunately, this also meant the same thing for Soilbuild. I highly suspect it is not as easy to find another tenant for this kind of warehouse as well, as this is a niche business.
Photos taken from Annual Report 2016
Thirdly, Soilbuild Business Reit is planning to divest it's property at 61 Tuas Bay Drive and 71 Tuas Bay Drive, currently tenanted to KTL Offshore Pte Ltd. KTL Offshore Pte Ltd is the third tenant that Soilbuild Business Reit have to deal with in collecting of it's rental. I highly suspect this is why its Sponsor is stepping in to purchase over this property from Soilbuild Business Reit. With all this being said, what does it meant for us as investor. Based on the data extracted from the circular report,
NK Ingredient consist of about 5.8%, while KTL Offshore consist of about 4.3% of the total income. As Technics Offshore Engineering is already out of the picture, I will not be adding them in. The total DPU for Soilbuild Business Reit for FY 2017 is 5.712. Assuming the worse case scenario of erasing both of them to 0, the DPU for FY 2018 should be around 5.08368.
However, this is not all. The latest rental reversion came out to be about negative 15.7% for new rental and 9.2% for renewal tenant. To keep some buffer, assuming DPU for FY 2018 to be around 4.8, I will be looking at around 7% yield. Still acceptable from my point of view, I doubt I will be divesting my shares for now. Hopefully, there will be a capital distribution after the divestment of KTL Offshore. Any reduction or shifting of my capital will likely to happen only after the divestment news.
