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.
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.
Decline in Future DPU
Given the loss of income contribution from a major tenant, DPU is expected to fall.
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.
Actually, i dont see why the 2 issues makes u lose faith in the reit manager.
Both are not their fault. In fact, they did the right thing to have a bank guarantee with technica and got 18 month cash.
Hi Sweet Retirement,
The management’s ability/track record of securing lease renewals or new tenants is crucial for REITs.
I guess another lesson we could learn is the importance of having a diversified base of strong tenants from different sectors and geographical locations.
I couldn’t understand nor accept how the company could acquire a piece of property so recently and now starting a dispute on default payment from the original owner turned tenant. What happened to their due diligent in the first place before making that investment decision?
I sold all my holding today with a small loss.