Soilbuild REIT Worrying Debt

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Few months back, I bought more on Soilbuild REIT and Keppel REIT given the attractive dividend yield. It was a lesson learnt for me as I bought purely because of its dividend yield. I was lucky Keppel REIT stock price reversed and went on an uptrend. However, I was not so fortunate for Soilbuild REIT. The stock price continue to dip.

Soilbuild REIT failed one of my most important criteria for stock selection. This is having unencumbered assets and low gearing ratio. Singapore REITs can borrow up to 45% of total assets. Soilbuild REIT gearing ratio is currently 36%. This is considered average, neither too high nor too low.

However, it failed the unencumbered asset criteria. Soilbuild REIT’s existing SGD185 million facility is secured against Solaris. Solaris is Soilbuild REIT largest asset by valuation in its portfolio. Soilbuild REIT’s SGD100 million bank loan facility is secured against its West Park Biz Central asset. In the event it fails to finance its debt, the assets will be taken over by the bank.

Conclusion

With the downside on marine offshore and oil & gas sector, it is worrying as Soilbuild REIT’s 25.2% gross rental income comes from marine offshore and oil & gas. Technics Offshore Engineering Pte Ltd recently default on its rent. Having a gearing ratio of 36%, there is minimum room for Soilbuild REIT to borrow further. More secured loan using its other assets? Personally felt that is risky.

I am expecting DPU to fall in upcoming quarters. Soilbuild REIT stock price closed at S$0.69 on Friday, 1st July 2016.

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