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SoilBuild Business Space REIT Beats Forecast

Industrial property real estate investment trust SoilBuild Business Space REIT (SGX: SV3U), or “Soilbuild REIT”, just released its fourth quarter earnings this morning and managed to beat its own forecasts given in its listing prospectus on a number of fronts.

This is the second consecutive quarter where the REIT had managed to report actual results that were better than expected after its listing on the Mainboard exchange last August at a price of S$0.78 per unit.

Since then, it has lost roughly 2% of its value to its current price of S$0.765, barely inching ahead of the Straits Times Index’s (SGX: ^STI) loss of 2.4% in the same period.

Soilbuild REIT currently owns seven properties in Singapore, five of which are industrial properties with the other two being business parks. They are collectively valued at S$935m as of 31 Dec 2013.

Some basic numbers

For the quarter ended 31 Dec 2013, the REIT’s net property income came in at S$13.7m, some 2.1% higher than its IPO forecast. Further down its income statement, distributable income was 3.5% higher than estimated at S$12.15m.

More importantly for unit-holders, Soilbuild REIT’s distribution per unit (DPU) of 1.51 Singapore cents was 3.2% better than its estimates. According to the REIT’s presentations, its quarterly DPU of 1.51 cents would give an annualised distribution of 5.99 Singapore cents and hence, an annualised distribution yield of 7.8% based on its units’ current price.

The REIT’s net property income was better than expected mainly due to high income coming from the West Park BizCentral and Solaris properties. That, as well as lower than estimated finance expenses and management fees, helped prop up Soilbuild REIT’s distributable income.

Operating highlights and the balance sheet

The REIT owns a portfolio of very new properties with an average age of just 3.9 years. In addition, the seven properties have land leases that expire in 50 years’ time on average. Occupancy rates for Soilbuild REIT’s portfolio were also healthy across the board at 99.9%.

The REIT had also managed to renew all three leases (accounting for 2.2% of its total net lettable area) that were due for expiry last year. In addition, positive rental reversions – the adjustment of rentals to reflect market conditions – of 7.8% were also logged for these renewals.

As of the reporting date, Soilbuild REIT has a “well staggered” lease expiry profile as shown below:

Year

Lease Expiry by Gross Income

2014

14.9%

2015

28.2%

2016

12.3%

2017

7.6%

Beyond 2017

37.0%

Source: SoilBuild Business Space REIT Fourth Quarter Earnings Presentation

The REIT has a total debt load of S$280m with an average cost of 3.12%. Aggregate leverage (total debt over total assets) is at 29.3%, which is well below the legal limit of 60% for REITs with a credit rating. SoilBuild REIT’s debt-profile is also well spread out, which is a positive for investors.

Maturity date for debt

Amount

2014

0

2015

S$95m

2016

S$95m

2017

S$90m

Source: SoilBuild Business Space REIT Fourth Quarter Earnings Presentation

What’s next for SoilBuild Business Space REIT

SoilBuild Business Space REIT currently has a BBB-/Stable credit rating from Standard & Poors, which isn’t too bad as BBB- is still considered “investment grade”. This is what S&P has to say about SoilBuild Business Space REIT according to the latter’s earnings presentation:

Singapore-based has good asset quality, almost-full occupancy rates, and a moderate financial policy.

However, the industrial REIT’s portfolio size is limited, its expiry profile is slightly uneven, and bank covenants constrain its leverage.

The stable outlook reflects [S&P’s] expectation that the REIT will continue generating steady cash flows and its ratio of debt to assets will not exceed 40% over the next 24 months.”

In the Industrial property sector (which is where SoilBuild REIT earns its keep), research firm DTZ estimates that rents would “continue the upward trend in 2014” as the manufacturing industries, among others, continues to grow. A “moderate supply” of new industrial space appearing on the market that’s backed by high levels of pre-commitment would also bode well for rents, according to the REIT.

On a final note, the REIT’s managers “believe that Soilbuild REIT is well placed to deliver on its forecast distribution [of 5.97 Singapore cents] for 2014 financial year”.

Valuation

At the REIT’s current price, it’s selling for just under 1 times book value.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chong Ser Jing doesn’t own shares in any companies mentioned.