Here Are 3 Negative Aspects Of Soilbuild Business Space REIT’s Business That Investors Should Know From Its Latest Earnings

Soilbuild Business Space REIT (SGX: SV3U) invests primarily in business parks and industrial properties in Singapore. The REIT’s portfolio has properties such as SolarisWest Park BizCentralEightrium @ Changi Business Park, and more.

Last week, the REIT released its 2017 fourth quarter earnings, and gave a presentation. I went through the presentation and found three negative aspects about Soilbuild Business Space REIT’s business that I want to highlight in this article. I think investors should be paying attention to these areas.

Let’s start with occupancy rates. The chart below shows the occupancy rate for the REIT’s portfolio (the thick grey line) from 2014 to 2017:

Source: Soilbuild Business Space REIT 2017 fourth quarter earnings presentation

We can see that Soilbuild Business Space REIT’s portfolio occupancy rate has been trending down from 100% in the first quarter of 2014 to 92.7% in the fourth quarter of 2017. This is clearly not in the favour of the REIT. Nevertheless, there is still some good news, and that is, over the timeframe under observation, the REIT has managed to maintain an occupancy rate that’s mostly higher than  the average occupancy for industrial properties (the dark blue line).

Next, let’s look at rental reversion. The table below shows Soilbuild Business Space REIT’s rental reversion rates in the fourth quarter of 2017, as well as for the whole year:

Source: Soilbuild Business Space REIT 2017 fourth quarter earnings presentation

The picture with the REIT’s rental reversion is ugly. Rental reversion rates for both renewals and new leases were down (some sharply) in the quarter, as well as in the year. If this continues, it is likely that the REIT will report lower net property income in the coming quarters.

And last but not least, let’s look at the REIT’s distribution per unit (DPU). The chart below shows the REIT’s distributable income and DPU in each quarter, going back to the third quarter of 2013:

Source: Soilbuild Business Space REIT 2017 fourth quarter earnings presentation

The information worth highlighting here is that after a period of growing its DPU between 2013 and 2015, this trend has since reversed. If Soilbuild Business Space REIT is unable to resume growth in its DPU, its investors could suffer in the years ahead.

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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 contributor Lawrence Nga doesn’t own shares in any companies mentioned.