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Rental Disputes

Soilbuild REIT Logo

Rental disputes are very common among REITs because that is mainly the source of income for REITs. Recently, one of the REITs in my stock portfolio has been engaged in some legal action and I decided to do some further research to share with readers here. The REIT is Soilbuild Business Space REIT (“Soilbuild REIT”). Soilbuild REIT accounts for 3% of my current stock portfolio.

Here is a summary of the past news I found.

Soilbuild REIT Dispute with JTC over Rent (2015)

Soilbuild Business Space REIT announced on 16 January 2015 that it has a rental dispute with JTC on Solaris. In 2014, JTC informed DBS Trustee Limited, the trustee of Soilbuild Reit, of an error on the rent charged. JTC claims that the correct rent should be S$855 psm per annum for land rent and S$70 psm per annum for the subterranean rent. Thus, JTC is trying to claim back the difference in payment. The dispute regarding additional land rent payable to JTC corporation amounts to some S$3.5 million per annum.

Soilbuild REIT Legal Action Against Technics Offshore Engineering for Rental Default

Technics Offshore Engineering which occupies 72 Loyang Way defaults in the rent payment. Soilbuild took legal action against Technics Offshore Engineering for the rental default. Soilbuild received SGD11.8 million in cash after claiming a bank guarantee equivalent to 18 months of rent for its property at 72 Loyang Way.

Technics Offshore Engineering is the top tenant which contributes 9.1% of the monthly gross rental income.

Personal Analysis

Negative Reputation Impact

Too much news on disputes will have a negative reputation impact to the manager of the REIT. Although legal court actions are proper, investors will probably lose confidence in this REIT. Personally, I have lost some confidence in the manager of Soilbuild REIT.

Loss of Monthly Gross Rental Income

Technics Offshore Engineering is the top tenant which contributes 9.1% of the monthly gross rental income. It is worrying if the other Marine Offshore, Oil and Gas tenants will also default in rental given the poor economy outlook for the Marine and Gas sector. Currently, Marine Offshore, Oil and Gas tenants make up 23.5% of Soilbuild gross rental income.

Soilbuild Master Lease

Decline in Future DPU

Given the loss of income contribution from a major tenant, DPU is expected to fall.

Lesson Learnt

I have recently bought more of Soilbuild REIT based on its high yield. The lesson learnt here is that a good management is also very important in selecting a REIT. I shall not be adding more to this REIT for the time being and shall observe how the management ride against the current head winds in the industrial sector.

Summary of May 2016 Transactions

Portfolio_201605_May

A few stocks I held (ST Engineering, Starhub, NeraTel, Soilbuild, ComfortDelgro) paid out dividends this month. As the old saying goes “Sell in May and Go Away“, I certainly did not follow. Taking opportunity of disappointing financial results, I nibble more of ST Engineering and added Kingsmen Creatives into my stock portfolio.

Kingsmen Creatives have been on my watch list for quite some time. One of my fellow financial bloggers like B at A Path to Forever Financial Freedom is vested with 80,000 shares. At current price, the dividend yield should be around 4.76%.

I nibble more of ST Engineering and shall add more if the share price fall below S$3.00. The share price fluctuates a lot between S$3.06 to S$3.18. Land Systems and Marine sector revenue decline this quarter however, the losses are offset by profit gains in the Aerospace and Electronics sector.

I have also started building my spouse portfolio.

My Sweet Retirement should become Our Sweet Retirement!

How Will Sale of NeraTel Payment Solution Business Impact Me

Sale

We know that NeraTel main two businesses are telecommunications and info-communications. Under info-communications, it is further defined into network infrastructure and payment solutions.

On 20th May 2016, NeraTel announced that it has came into an agreement to sell its payment solution business to Igenico Group for S$88 million. The net proceed from the disposal of NeraTel payment solutions will be paid to shareholders.

My stock portfolio consist of 6% of NeraTel and I am pretty much concern about how the sale of its payment solution business will impact my holdings.

According to the announcement,

  1. NeraTel’s earning per share will fall from 3.7 cents to 2.9 cents after disposal of its payment solution business.
  2. Payment solutions business accounted for approximately 26% NeraTel’s total revenue of S$181.5 million and approximately 21% of its total earnings of S$13.4 million.

My personal analysis

  1. After disposal, NeraTel will be a pure Telecommunications play, focusing on network infrastructure. The entry of 4th Telco may be beneficial to NeraTel if NeraTel is engaged to provide networking services for the 4th Telco. However, this is purely my own speculation.
  2. NeraTel will be less capital intensive. However, it also means the loss of recurring revenue from the lease of Point of Sales (POS) systems.
  3. I expect a special dividend payout from NeraTel after the disposal.

My decision is to wait for further developments as my original purpose of purchasing NeraTel is for recurring dividend income. As payment solution only make up 26% of NeraTel’s total revenue, I am expecting not much of a dividend cut.

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