Soilbuild Business Space REIT - DBS Research 2016-05-20: Writ of summons to tenant for non-payment of rent

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SOILBUILD BUSINESS SPACE REIT SV3U.SI 

Soilbuild Business Space REIT - Writ of summons to tenant for non-payment of rent

• Issues writ of summons to Technics Offshore for non-payment of rent
• Management has safeguards in place - 18-month deposit to shield any downside to earnings
• Sufficient time in our view to re-position the property in the worst-case scenario

What has happened?

Writ of summons to Technics for default in payment.

• Soilbuild Business Space REIT (SBREIT) reported that it has issued a writ of summons against Technics Offshore Engineering Pte Ltd (Technics), which is a tenant at 72 Loyang Way, Singapore and Technics Oil & Gas Limited (Guarantor) in the High Court of Singapore.
• SBREIT is claiming 
  1. a sum totalling S$2.2m for the tenant's default in payment and other outstanding sums, continuing arrears in rental until judgment, 
  2. S$11.8m security deposit , equivalent to 18 months’ rent, 
  3. interest at the rate of 8% per annum until the date of full payment, and 
  4. other legal costs on an indemnity basis as a result of default by the tenant.

Our view

Investors likely to turn cautious given the uncertain on the outcome of this court case. 

• We believe that investors are likely to turn more cautious given the uncertainty regarding this court case. We note that SBREIT's has a relatively high exposure to the oil & gas sector (as of 1Q16, SBREIT derived 23.5% of its top line from tenants in the space). 
• Apart from the non-payment from Technics, we understand that rental has been prompt from other tenants in the space.

Management has safeguards in place. 

• We are comforted of safeguards put in place – an 18-month security deposit which will help maintain distributions over the coming financial year while management works out a viable solution with Technics. This will allow SBREIT sufficient time-lead to re-position and re- let the space in the medium term.
• As such, near-term earnings estimates are safe for now, pending further updates on the outcome of this case.

Derek Tan DBS Vickers | Mervin Song CFA DBS Vickers | Singapore Research Team DBS Vickers | http://www.dbsvickers.com/ 2016-05-20

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