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An opinion of Soilbuild REIT.

Friday, March 31, 2017

This came about because of my comment on Facebook that "There are sponsors who are mainly interested to use their REITs to sell their assets to. REITs are their ATMs."

Reader:
Soilbuild owner also use the REIT to sell property right?

AK:
Must see how it is done. ๐Ÿ˜‰
If sponsor sells property with rental support, usually, it is a sign that the property is overpriced.

Reader:
hmmm
Because I haven't heard many favourable talk about soilbuild owner

AK:
Oh, neither have I ๐Ÿ˜œ
But if we are on the same side, it is OK.
LOL
If he hurts me, he hurts himself. ๐Ÿ˜‰

Reader:
Haha I thinking just buy in those with solid management
at good prices
Less headache

AK:
Now, difficult.
So, I settle for good management at OK prices.
Or OK management at good prices. ๐Ÿ˜œ
OK management at OK prices, I also take a bit.

Reader:
Because what I read so far is similar to OUE, soilbuild owner treat the reit as dumping ground to unlock cash

AK:
Eh... I dun see it leh... They do sell but they dun dump. No financial engineering as compared to OUE or Keppel.
Selling does not equal dumping.

Reader:
Sponsor is weak also

AK:
OK. If you say that, OUE and Keppel are strong sponsors. ๐Ÿ˜‰
I like to see what they do and decide.
Saizen REIT didn't have strong sponsor.

Reader:
(Some concerns with valuations of assets.)

AK:
Book value and market value har?
The best way of looking at whether valuations are realistic is to look at market prices.
When a property like XXXXXX was delisted (together with Soilbuild) many years ago, it was undervalued. Of course, when relisted, they want to list at market value.

Reader:
haha I more conservative just worried owner play punk
if own also carry small position only

AK:
I think Soilbuild towkay has business savvy but not crooked.

Reader:
me KIV until better, I also don't like the heavy exposure to O&G

AK:
I remember the towkay has a 25% stake in the REIT. That is not a small stake.

Note:
Although Soilbuild REIT's business parks are attractive assets to own, it is true that their exposure to the O&G sector is a cause for concern.
 

With Technics going bust, I estimated that 10% of their income is affected. I believe that Mr. Market has priced this in. 

If the entire O&G sector goes kaput, I guess that is when we might see Soilbuild REIT being punished by Mr. Market and its unit price could decline another 20%, maybe. This is improbable but possible.

Related post:
AA REIT, Soilbuild REIT and VIT.

20 comments:

ScOpIoN said...

Vested in Soilbuild REIT so my views might be a little biased. I've been through something like this discussion with a friend, on how the REIT is a dumping ground for the sponsor(SB). Personally feel SB is business savvy too, they unlocked the cash liquidity to further their construction business. Both REIT and main biz are still profitable, though the REIT is going through a rough patch, the management are doing their best to maximise the REIT's yield. As your concern for Technics property, they have done something to it and cut up the place and rented out a portion of it. Even if it's not the best or favourable outcome, at least they were busy seeking for tenants instead of sitting at the office doing nothing much. So still optimistic about SB REIT but not as secured as your most favourable AA REIT.

AK71 said...

Hi Scopion,

With the founder holding a pretty substantial stake in the REIT, I would be quite surprised if the manager doesn't work as hard as they do. In fact, they should work harder. ;p

Kevin said...

Hi AK and ScOpIoN,

With Technics going bust, there is still existing 4 to 5 months of rental deposit being withheld and it will enable the REIT to tie over this period without instant loss of rental income.

I feel the REIT manager is doing alright whereby the last rights issue exercise was a 10-for-1 offering(not a deeply discounted one like a fellow industrial REIT starting with the letter S) :P

Moreover, Mr Lim is the top shareholder for the REIT at over more than 25% and also a PBM holder. I think he have more to lose than to gain if he were to have ill intentions.

AK71 said...

Hi Kevin,

I also believe Soilbuild REIT isn't doing too badly. :)

Of course, some might say that I am bias. ;p

xiang said...

Hi. What is the problem with OUE and keppel management?
Able to share any previous post about them?

AK71 said...

Hi xiang,

Aiyoh. I anyhow talk to myself one lah.

1. OUE C-REIT will see DPU declining.

2. DPU plunged at Keppel DC REIT.

desmondsph said...

Expecting PDU to drop after may, will the price drop then or already priced in? the price increase quite steadily this week

AK71 said...

Hi Desmond,

Aiyoh, I anyhow estimate the DPU de. ;p

Will the price drop? -.-"

I tell you if I can find a working crystal ball, ok? ;)

AK71 said...

Reader:
Hi AK sorry to trouble you. Considering Soilbuild NAV is 0.72, does the current of 0.73 looks ok? Just wondering why some people have so much concern about its exposure to O&G. It has a lot of other industries in its portfolio too. Many thanks.

AK:
I dunno. It doesn't bother me. ๐Ÿ˜‰

Kevin said...

NK Ingredients Pte Ltd which is Soilbuild REIT’s tenant over at Pioneer Sector 1 goes into arrears with outstanding amount of 3.42 million dollars.

http://infopub.sgx.com/FileOpen/Soilbuild_Call%20on%20insurance%20guarantee_18%20Sept%2017.ashx?App=Announcement&FileID=470927

AK71 said...

I keep thinking to myself that a recession is probably overdue.

AK71 said...

... on 12 September 2017 issued a letter of demand to NK Ingredients Pte. Ltd. (formerly known as NK Chemicals Pte Ltd) (“Tenant”) for arrears amounting to S$3,421,120.33. The Trustee holds an insurance guarantee issued in its favour amounting to S$5,110,677.

The balance of the insurance guarantee of S$1,689,556.67 is equivalent to approximately four months of rent. The Manager does not expect there to be a material immediate financial impact on Soilbuild REIT’s distribution per unit (“DPU”) for the current financial year.

Based on the unaudited half year ended 30 June 2017 financial results of Soilbuild REIT, the DPU of Soilbuild REIT was 2.955 cents. Purely for illustrative purposes, assuming Soilbuild REIT had terminated the lease with the Tenant as at 1 January 2017, the DPU for the half year ended 30 June 2017 would be approximately 2.640 cents.

Charles Liu said...

sounds like price may drop... :)

AK71 said...

I wouldn't be surprised if it does.

Laurence said...

Soilbuild REIT’s tenant currently occupying 2 Pioneer Sector 1 has gone into arrears over unpaid rent on the property, the REIT announced on 18 September.

The tenant, NK Ingredients Pte Ltd, owed Soilbuild REIT some SGD3.42 million in outstanding rent.

As a result of the arrears, Soilbuild REIT has issued a letter of demand to NK Ingredients for the amount owed, and called upon the insurance guarantee provided by the company as part of the rent agreement.

As trustee of Soilbuild REIT, DBS Trustee Limited, held an insurance guarantee amounting to SGD5,110,677.

Soilbuild REIT tenant at Pioneer Sector 1 property goes into arrears

Laurence said...

Charles Liu said...
sounds like price may drop... :)


AK71 said...
I wouldn't be surprised if it does.


Any news of price drop will be music to our shrewd AK's ears for obvious reason. Lol.

AK71 said...

Hi Laurence,

I have to say that it is not always true.

keng said...

Hi AK,

NK Ingredients is not an O&G company, so if they are indeed unable to pay rent, it is really worrying for the rest of the master lessees under SBREIT's portfolio.

Wonder if a redevelopment to multi-tenant is the only way to go, albeit having to bear development costs and accepting lower rents.

Appreciate your view on this.

keng said...

My email to SBREIT:

"Hi, your latest announcement on NK Ingredients seems to suggest that the tenant might vacate the premise soon. May I know if you have preemptively source for another tenant to fill up the space? Thanks."


SBREIT response:

"Hi Mr WXXX

Thank you for your email.

We do not have a ready tenant to fill up the space at the moment, but we will be sourcing for new tenants in the similar industry.

Hope the above clarifies.

Thank you.

Regards,
Investor Relations Team"

AK71 said...

Hi Keng,

I do not know what is going to happen in the future but we know that industrial REITs are facing headwinds. We see this happening to AIMS AMP Capital Industrial REIT too.

See:
AIMS AMP Capital Industrial REIT challenged.

How well a REIT does in such an environment really depends on the quality of the management and also a bit of luck. Lady Luck has not smiled on Soilbuild REIT.

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