Soilbuild Business Space REIT - Phillip Securities 2017-09-19: Master Leasee NK Ingredients Defaults

Soilbuild Business Space REIT - Phillip Securities 2017-09-19: Master Leasee NK Ingredients Defaults SOILBUILD BUSINESS SPACE REIT SV3U.SI

Soilbuild Business Space REIT - Master Leasee NK Ingredients Defaults

  • Letter issued to NK Ingredients, demanding for rent in arrears.
  • No impact to FY17e estimates, as the balance of security deposit covers approximately four months of rent.
  • The manager estimates that the property contributed 0.315 cents DPU for 1H FY17; NK Ingredients account for almost 7% of FY16 NPI.
  • Rating and target price Under Review, pending further announcement in seven days.



What Is The News?

  • Soilbuild Business Space REIT (SBREIT) announced that a letter of demand has been issued to NK Ingredients Pte Ltd (NK Ingredients) for rent arrears amounting to S$3.42mn. 
  • NK Ingredients is the master leasee at SBREIT’s property at 2 Pioneer Sector 1. The Trustee, holds the security deposit amounting to S$5.11mn. After SBREIT draws down the arrears from the rental deposit, the S$1.69mn balance is equivalent to approximately four months of rent. 
  • NK Ingredients has seven days to top up and make whole the security deposit.


How Do We View This?


Tenant has been in arrears for eight months 

  • We deduce from the rent arrears (S$3.42mn) demanded and the balance security deposit which lasts for four months (S$1.69mn) that NK Ingredients has been in arrears for eight months.

Not a systemic default of Marine Offshore, Oil & Gas tenant 

  • NK Ingredients is from the Chemicals sector. NK Ingredients refines wool grease, which is the raw material for all lanolin products. Lanolin is used in cosmetics.

No impact to our FY17e forecast 

  • The security deposit is equal to about four months of rent and it will cover for the remainder of FY17e.

Material impact to the portfolio, should the Tenant be terminated 

  • On a full year basis, NK Ingredients accounted for 6.8% of portfolio net property income (NPI) and 8.9% of gross rental income (GRI) in FY16. For the most recent 2Q FY17, NK Ingredients contributed 5.9% of portfolio GRI. NK Ingredients is currently the largest master leasee in the portfolio, if Solaris and Bukit Batok Connection were to be excluded. 
  • Recall that both Solaris and Bukit Batok Connection are master leased properties, but with underlying end-users.


Rating and target price Under Review, pending further announcement (previously Neutral: S$0.73) 

  • Our estimates from FY18e onwards is dependent on whether NK Ingredients tops up the security deposit within the next seven days. Failure to top up will result in us having to lower our estimates. 
  • At this time, we think there is a low probability of NK Ingredients topping up the security deposit.




Richard Leow cFTE Phillip Securities | http://www.poems.com.sg/ 2017-09-19
Phillip Securities SGX Stock Analyst Report NEUTRAL Review NEUTRAL 0.730 Same 0.730



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