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5 Signs That Cause Me To Stay Away From Soilbuild Business Space REIT’s High Distribution Yield Of Over 8%

Soilbuild Business Space REIT  (SGX: SV3U) is a real estate investment trust that invests primarily in industrial and business park properties in Singapore. The REIT’s portfolio includes properties such as SolarisWest Park BizCentral, and Eightrium.

The REIT recently captured my attention due to its high distribution yield; on 12 June 2018, it was trading at a unit price of S$0.66, which gave it a yield of 8.4%. But, after digging deeper, I found a number of worrying signs about the REIT which caused me to stay away from it for now.

In a previous article, I shared three of the signs, which are the REIT’s poor financial performance, weak occupancy rates, and negative rental reversion rates. In this article, I want to follow up with another two worrisome signs.

Sign 4: Declining distributions

A REIT should ideally have a history of producing a stable or growing distribution per unit (DPU). That is unfortunately not the case for Soilbuild Business Space REIT.


Source: SBS REIT Result Presentation

The chart above shows the REIT’s distribution per unit (the orange line) going back to the third quarter of 2013, and you can see that its DPU has been declining steadily after touching a high of 1.633 cents in the first quarter of 2015. In the first quarter of 2018, Soilbuild Business Space REIT’s DPU was 1.324 cents, down 19% from the peak in 2015’s first quarter.

Sign 5: No clear indication of a turnaround in its business

Another thing that I find troubling about Soilbuild Business Space REIT is the lack of clarity on when the industry-related challenges it is currently facing will end. In fact, Roy Teo, the CEO of Soilbuild Business Space REIT’s Manager, shared some comments in the REIT’s latest earnings update (for 2018’s first quarter) which suggests that the REIT’s current challenges may continue for some time:

“The industrial property market remains soft with competing supply negatively impacting our occupancy and rental rates. We are making headway with the restructuring of Soilbuild REIT’s portfolio and strengthening its tenants mix.

With the divestment of KTL Offshore, marine offshore and oil and gas sectors account for only 6% of revenue. We have also received 6 months of cash security deposit from NK Ingredients Pte. Ltd. as they continue operating in our premises. We are now in a better position to benefit from a potential recovery of the industrial property market.”

As such, investors will need to have the necessary patience (and stomach) to wait for the industry – and thus, Soilbuild Business Space REIT’s business – to improve.

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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.