Soilbuild REIT DPU Increases for 4QFY15

Soilbuild REIT Logo

Soilbuild REIT announces its results for 4Q2015 on 21st January 2016. Distribution Per Unit (DPU) increase 1.8% to 1.614 cents as compared to 1.585 cents a year ago. This brought the total DPU for 2015 to 6.487 cents as compared to 6.193 cents in 2014.

Based on the market closing price of S$0.77 on 31st December 2015, the yield for Soilbuild REIT is 8.42% for year 2015.

4Q2015
(S$’000)
4Q2014
(S$ ‘000)
YoY(%)
Gross Revenue 20,434 17,682 15.6
Net Property Income 17,490 14,932 17.1
Distributable Amount 15,091 12,892 17.1
Distribution Per Unit (“DPU”) (cents) 1.614 1.585 1.8
Annualised DPU (cents) 6.487 6.193 4.7

Soilbuild REIT DPU

Lease Expiry

From the below table, we can see that all of the properties in its portfolio have long land lease expiry.

Property Land Tenure Expiry
Solaris 31 May 2068
West Park BizCentral 31 July 2068
Eightrium @ CBP 15 Feb 2066
Tuas Connection 30 Sep 2050
NK Ingredients 30 Sep 2046
COS Printers 31 Jul 2042
Beng Kuang Marine 29 Oct 2056
Tellus Marine 15 Feb 2054
KTL Offshore 18 Jul 2066
Speedy-Tech 30 Apr 2050
Technics Offshore 20 Mar 2038

Things to Note

Weakness in Manufacturing Sector

Manufacturing sector is slowing down which affects the industrial property market. This has a downward pressure on industrial rents and occupancy.

Long Term Leases

Long term leases of 5 to 15 years provide stability.

Fixed Annual Rental Escalation of Master Leases

Fixed annual rental escalation of master leases applies to its tenants (Solaris, NK Ingredients, COS Printers, BK Marine, Tellus Marine, KTL Offshore, Speedy-Tech, Technics).

How Singapore REITs Defend against Fed Rate Hike

Rising Interest Rates

I was curious on how the Singapore REITs I held in my portfolio will hold the fort against the recent Fed rate hike. Thus, I dig into the financial result releases by each REIT recently for more details. I learnt a new term known as “Interest Rate Swap”. REITs issue bonds or notes as a form of interest rate swap.

Below is the definition taken from Investopedia. There is a video where you can watch for easier understanding.

An agreement between two parties (known as counterparties) where one stream of future interest payments is exchanged for another based on a specified principal amount. Interest rate swaps often exchange a fixed payment for a floating payment that is linked to an interest rate (most often the LIBOR). A company will typically use interest rate swaps to limit or manage exposure to fluctuations in interest rates, or to obtain a marginally lower interest rate than it would have been able to get without the swap.

Below are some statements extracted from the financial results which indicate fixed rate interest as a form of hedging or usage of interest rate swap to manage exposure to interest rate fluctuations.

Cambridge Industrial Trust

Cambridge Industrial Trust has 96.5% of interest rate exposure fixed for next 3.2 years. Borrowing costs significantly insulated against interest rate increases.

Frasers Commercial Trust

Frasers Commercial Trust has 81% of its debt hedged and 19% floating.

(Read more: Frasers Commercial Trust Achieves All Time High DPU of 9.71% for FY15)

Suntec REIT

Uses interest rate swap to manage exposure to fluctuations in interest rates.

(Read more: Suntec REIT DPU Rises for 3Q2015)

Soilbuild Business REIT

95% of debt hedged.

Far East Hospitality Trust

Uses interest rate swap to manage exposure to fluctuations in interest rates.

(Read more: Far East Hospitality Trust DPU Fall for 3Q2015)

CapitaMall Trust

Uses interest rate swap to manage exposure to fluctuations in interest rates.

Keppel REIT

Increased fixed-rate loans to over 70%, which will insulate against interest rate fluctuations, while allowing for financial and operational flexibility.

(Read more: Keppel REIT announces DPU of 1.70 cents for 3Q2015)

Mapletree Commercial Trust

Uses interest rate swap to manage exposure to fluctuations in interest rates.

(Read more: Mapletree Commercial Trust DPU Rises 2.5% to 2.02 cents 2QFY15)

OUE Hospitality Trust

Uses interest rate swap to manage exposure to fluctuations in interest rates.

ParkwayLife REIT

ParkwayLife REIT has hedged approximately 78% of its interest rate exposure.

(Read more: Parkway Life REIT DPU Increases for 3Q2015)

Conclusion

As a conclusion, we can see that most Singapore REITs are well defended against the Fed interest rate hike.