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Soilbuild Business Space REIT (Soilbuild REIT).

Saturday, August 10, 2013

This REIT's full name is a mouthful. Reminds me of Sabana REIT and AA REITs' full names. Maybe, based on that, I should be interested in it.


Soilbuild gave a range of unit prices from S$0.77 to S$0.80 and had to settle for $0.78. This gives me the impression that Mr. Market might not be too keen on the IPO.

"Soilbuild Business Space REIT (Soilbuild REIT), which owns two business parks and five industrial properties, is offering 586.5 million units. The placement tranche comprises 524 million units and the public offer 62.5 million units.

"At S$0.78, the REIT offers a dividend yield of 7.7 per cent based on projections for fiscal 2014.
Soilbuild and founder Lim Chap Huat will hold an interest of about 27 per cent in the REIT post-IPO, the company said.

"The IPO closes on Aug 14, with listing scheduled for Aug 16." (Source: TODAY online)


At $0.78 a unit, it is at a slight discount to NAV of $0.80 a unit and gearing is approximately 30%. The weighted average lease of its portfolio of properties is 50.5 years.

While seasoned investors in REITs might say that it is possible to get a higher distribution yield from Sabana REIT, with Soilbuild REIT, we wouldn't have to worry about expiring tenancies until much later. Also, Sabana REIT's gearing is closer to 40% than 30%.

Of course, the longer weighted average lease of its properties might make Soilbuild REIT a preferred choice for investors worried about land lease renewals.

Is this a buy? Well, investors for income should be attracted to this IPO. I do not see any red flags in the numbers. However, given the current cautious mood towards REITs, if we are expecting big capital gains, we could be disappointed.

Could it not do a 10% price appreciation on its debut like SPH REIT did? Although that would send its distribution yield for 2014 to under 7%, it could happen. Who knows? Frankly, if that should happen, AIMS AMP Capital Industrial REIT, with its redevelopment plans and AEIs, would look more attractive then.

So, I do not see how Soilbuild REIT is significantly more attractive than other industrial S-REITs for Mr. Market to pay much more for it. I feel that the IPO is pricing Soilbuild REIT at a fair price.

18 comments:

la papillion said...

Hi AK,

SBSR doesn't have a strong branded backing. I think it'll be a flop :) Most of the listing that do well have a branded and strong backing. SPH is thus not a good gauge of this listing. Sabana is a good gauage though. If I remember correctly, when Sabana started trading, the price went below IPO for quite some time.

AK71 said...

Hi LP.

It is really hard to say for sure. After all, OUE Hospitality Trust which arguably has a strong sponsor didn't have a stellar debut either.

Generally, I prefer to buy when there is a good bargain. If Soilbuild REIT should see its unit price 10% lower, I might buy some.

I remember initiating my long position in Sabana REIT at 93c and 92.5c more than 2 years ago. The distribution yield was 9.3% and gearing level was 26.5%.

Sabana REIT's IPO was at $1.05/unit. ;p

sillyinvestor said...

Hey AK,

I took a closer look at the prospectus, I think its even more exorbitant than Cambridge Trust's performance fees:

Manager’s Management Fees
Pursuant to the Trust Deed, the Manager is entitled to a Base Fee of 10.0% per annum of the
Annual Distributable Income and a Performance Fee of 25.0% of the difference in DPU in a
financial year with the DPU in the preceding financial year (calculated before accounting for the
Performance Fee in each financial year) multiplied by the weighted average number of Units in
issue for such financial year.
The Performance Fee is payable if the DPU in any financial year exceeds the DPU in the
preceding financial year, notwithstanding that the DPU in such financial year may be less than the
DPU in any preceding financial year.

Also, management seem very opportunistic, since they delist a few years back and then relist when the market is good, I am willing to look beyond this and look at the reit by itself, And when I saw the management fees, I am pissed.

Unless it gave me 10% yield, i say stop taking unsuspecting investors for a ride

AK71 said...

Hi Mike,

I was talking to a friend and he told me he would give anything to do with Soilbuild a miss. He did not elaborate. Hmmm...

Thanks for sharing your research. It is very good to know. :)

For sure, we do not want to invest in a REIT which has a compensation structure that unfairly favours the manager.

AK71 said...

SB REIT Management, the manager of Soilbuild Business Space REIT (Soilbuild REIT), today announced that its Initial Public Offering (IPO) has attracted strong interest from both institutional and retail investors for the 586,532,000 units offered at $0.78 per unit.

At the close of the public offer at 12.00 noon on 14 August 2013, there were 10,093 valid applications for 337,009,000 units. Based on the 62,500,000 Units available to the public for subscription, the public offer was 5.4 times subscribed.

DBS Bank, on behalf of the joint global coordinators for the offering, has over-allotted an additional 56,307,000 units to the placement tranche, to meet the strong demand from the institutional investors during the book building period.

Trading of the units is expected to start at 2 p.m. tomorrow (Aug 16).

The EDGE

AK71 said...

The shares opened at $0.77 at 2 p.m. local time and dropped as much as 7.7% to $0.72 compared with the IPO price of $0.78 apiece. The REIT raised $626.7 million, offering 586.5 million units.

Lim Chap Huat, co- founder of Soilbuild Group Holdings, the developer which partly owns the REIT, pledged to buy an additional 216.9 million units, according to a preliminary prospectus.

Rachael Herring
Friday, 16 August 2013 16:04

Elaine K said...

Hi AK

Soilbuils has been trading between $0.70- $0.73, which is 10% below NAV of $0.80.

I am wondering if it's worth a small position... Do you have a long position?

cheers
EK

AK71 said...

Hi Elaine,

Nope, I don't have an investment in Soilbuild REIT. I have enough exposure to Industrial S-REITs. :)

However, if the REIT's unit price should decline enough to offer a 10% distribution yield, I would be sorely tempted. ;)

Elaine K said...

Hi AK

10% yield will mean closer to $0.60!??

Hmmm..... that will indeed be very attractive!

AK71 said...

Hi Elaine,

Very nice margin of safety. Will it happen? I don't know. ;p

raf14 said...

Hi AK

SBSR is now offering a better return approaching 8% compared to slightly over 7% for other industrial reits. Would you now place it ahead of Sabana and Aims?

AK71 said...

Hi raf14,

It does look relatively attractive. However, I am mindful of the headwinds facing industrial properties S-REITs and, so, would only initiate a long position here when I have a comfortable margin of safety.

If I didn't yet have any exposure to industrial properties S-REITs, I could initiate a smallish position in the REIT. However, I already have a significant exposure and have been trimming this exposure in the last 6 months.

It will only make sense for me to increase exposure if Mr. Market makes me an offer that is very compelling.

AK71 said...

Soilbuild Business Space REIT (Soilbuild REIT) proposed to acquire a light industrial building located at 20 Kian Teck Lane in Singapore for a total cost of S$24.4m. We view the acquisition positively as the long leaseback term will add certainty to Soilbuild REIT’s income stream and provide further diversification to its portfolio assets. Based on our projections, the property is likely to generate an initial NPI yield of 7.5%. This, we note, is higher than its portfolio yield of c. 6.0%, thus likely making the deal DPU-accretive. Given that the acquisition is expected to complete in 4Q this year, we now incorporate its financial impact into our forecasts. However, there is currently no change to our fair value of S$0.88 on Soilbuild REIT. Maintain BUY as upside potential remains compelling.

OCBC Investment Research
3 Sep 2014

AhJohn said...

Business parks used to be the sole bright spot of Singapore’s slowing industrial leasing sector. However, the sector appears to have finally run out of luck this year, according to analysts from DTZ.

Business park rents slipped in the fourth quarter of 2015, the first drop since the third quarter of 2012. For the full year, business park rents fell by 0.4%, a far cry from the 6.8% year-on-year increase in 2014.

http://sbr.com.sg/commercial-property/news/will-be-bad-year-business-parks-analysts-warn

AK71 said...

Hi Ah John,

When the economy slows down, every business will suffer. There will be wide spread ramifications.

Siew Mun said...

I am still accumulating SBR gradually when the price is lower. I will take a closer look at SBR quarterly results on 21 Jan.

Siew Mun said...

In the SBR quarterly reporting, DPU is flat at 1.614 cents compare with last quarter 1.625 cents. There are no debt due until 2018. All in interest rate flat at 3.21% and coverage improve to 4.8x from 4.6x last quarter. However, debt maturity is reduced slightly to 3.2 years from 3.5 years.
Two points to worry is the rental revision and new leases down significantly at 15% and 25%. Rental revision is down to $1.40 psf from last quarter $1.68. New leases rental also down to $1.18 psf from $1.58. Doesn't look good if you extrapolate that there is 12.6% NLA to be renewed in 2016. I expect about 15%-25% reduction in renewals revisions / new leases. Correspondingly, NPI will reduce by 3%-5% provided all other remains the same.

What do you think?

AK71 said...

Hi Siew Mun,

I believe that it is prudent to stop adding to our investment due to the challenges of oversupply and weaker demand. Mr. Market could suffer a bigger bout of anxiety or even depression which means we could have opportunities to buy at even lower prices.

Things do look like they could get worse.

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