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Concerns Linger Even Though Bullish On Soilbuild
Tradeable, Tradeable Ideas | 02 April 2014
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By: Raymond Leung
Articles (142) Profile
  1. Recent acquisition of industrial property in Woodlands is yield accretive for the trust
  2. Concerns still linger about the lack of a credible sponsor
  3. Expected interest rate hikes by the Fed looks to suppress yields from 2015 onwards

Soilbuild Business Space REIT (Soilbuild) announced the acquisition of a new industrial property last week. The industrial property is a four storey building located in Woodlands and is expected to cost $18.3 million. After the purchase of the property, it will be leased for a period of ten years to its previous owner, Tellus Marine Engineering.

The acquisition is favoured by analysts as the purchase and leaseback arrangement will guarantee occupancy and income to Soilbuild. According to DBS Vickers Research, the yield of the property will be estimated at 7.9 to 8.5 percent, one of the highest among its peers.

However, not all is looking well for the trust in the long term. Singapore is expected to see a huge increase in availability of industrial properties by 2015 as many industrial developments come online.

Coincidently, the majority of its leases (33.2 percent) will expire on 2015 which might apply pressure on overall rental rates. This would also mean that the trust would have to source for new tenants if existing ones do not extend their leases.


Source: Soilbuild REIT, 4Q13 Presentation, Lease Renewal Schedule

The yield for Soilbuild might be lowered from 2015 onwards as the trust faces a compression in income margin due to potentially rising interest rate. The majority of its debt will expire on 2015 which happens to be around the projected date of the increase in interest rates by the US Federal Reserve.


Source: Soilbuild REIT, 4Q13 Presentation, Debt Maturity Profile

In addition, Soilbuild lacks a strong sponsor which will be crucial during a credit crunch. Based on experience during the Great Recession, trusts without a strong sponsor might go bust (e.g. MacarthurCook Industrial Trust) as they will have difficulty in finding investors to underwrite capital raising exercises.

Looking at the short and medium prospect of the trust, two research houses unanimously gave it a “Buy” call with a potential average upside of 12.8 percent.

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Trained in fund management, Raymond is familiar with shares and various investment vehicles.

Please click here for more information about this author.

Soilbuild Business Space REIT  0.525 -0.010 -1.87%   
Business: S'pore real estate investment trust with a focus on biz space ppties.

Insight: Jan-19, FY18 gross revenue fell marginally by 1.2%... Read More


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