SOILBUILD REIT: Niche player in Singapore business parks

Located in Fusionopolis, Solaris is the most expensive building in the Soilbuild REIT portfolio. Company photo

AMID A SLEW of analysts ‘buy’ calls on Soilbuild Business Space REIT (Soilbuild REIT, IPO: 78cts) in the last three weeks, its management recently met investors and provided further insights to the company.

CEO Shane Hagan was previously  CFO of Mapletree Commercial Trust.
Photo by Sim Kih“Soilbuild REIT’S primary difference lies in its excellent sponsor and portfolio of best-in-class assets,” said CEO Shane Hagan at Financial PR’s Company of the Month event on Monday.

”Our properties are located in key technology, media and back office hubs and logistics clusters.

"We are near air and sea transportation ports such as the Changi Airport, Jurong Port and the planned mega container port at Tuas that is expected to start operating in 2022.

“Our sponsor, Soilbuild Group, has a complete real estate platform ranging from SGX-listed Soilbuild Construction Group, real estate development (delisted in 2010) to capital management under Soilbuild Business Space REIT,” he said.

Four broking houses (DBS Vickers, Religare, OCBC Investment Research and AmFraser) have initiated coverage on Soilbuild REIT with ‘Buy’ calls following its IPO on 16 August.

Positives highlighted by the analysts include:

>> Projected yield of 8.3% is highest among industrial S-REITS

>> Strong demand in Singapore’s business parks is good news as Soilbuild REIT has relatively high exposure to such assets (43.2% of asset value versus 7.9% to 20.6% for peers)

>> Sponsorship by leading property group (Soilbuild Group) provides clear growth visibility.

Below is a summary of questions raised at the meeting and the replies provided by the CEO, as well as COO Roy Teo and CFO Kelvin Chow.
COO Roy Teo. Photo by Sim Kih
Q: What are your construction costs and rental yield per project?

Solaris at One-North has been our most expensive project. To date, its construction cost has amounted to about S$180 to S$200 psf.

The development won several architectural awards and has the BCA Green Mark Platinum rating. There is a lot of greenery around the building, with 1.5km surrounding the building and spiralling up.

From distance, it looks like a serviced apartment and there are various green features, such as an atrium with good ventilation throughout.

On the lower end, we have BizCentral West Park, a ramped-up kind of production area, such as those seen in a typical warehouse. Construction of ramped-up warehouses typically cost about S$120 psf, as they comprise mainly of just concrete and steel.

Q: Do the awards translate into higher rental yield?

Well-designed buildings cost less to operate. For instance, a typical business park operation will incur monthly operating expenses (OPEX) ranging from 80 cents to S$1.20 psf inclusive of utilities.  However, for this facility, monthly OPEX is between 60 cents to 70 cents psf.

Rental yield depends on our anchor tenants. Most of our tenants are MNCs who need to be in Singapore.  Some MNCs only rent award-winning facilities and that is where we step in. So far, such types of MNC are few and rare, but such demand benefits us as few buildings in Singapore are Green Mark Platinum.


CFO Kelvin Chow. Photo by Sim KihQ: What is the typical market rent at the business park where Solaris is located?

Market rates range from S$5 to S$5.50 psf per month.  One-North has the highest rental among business parks and is also the most centralized.  Its geographical location is better than Industrial Business Park (IBP) or Changi Business Park.

Q: What is the rental rate at West Park BizCentral?

Two to thee years ago, when West Park BizCentral was still under Soilbuild Group, units were let out at S$1.35 to S$1.70 psf per month at leases ranging from 3 to 5 years.

At that time, the Group had a huge 1.4 million sq ft area to let out and they tried to ramp up tenancy at the expense of rental.

Today, we are closing units at around S$1.70 psf per month.

We expect our base rental rates to rise after 2015 when the leases are renewed.  This will translate into better distribution per unit.

Q: What is the typical lease term?

A lease can be for 3 years, 5 years or 7 years.  With the REIT team in place, we will pay more attention to an even spread of lease terms.

Q: You mentioned that you have a competitive advantage when it comes to special tenders by JTC. What exactly is this advantage?

We have an advantage in JTC’s Concept and Fixed-Price Tender scheme that allocates industrial space based on strength of a business plan.

The Soilbuild Group has been building industrial assets for over 30 years.

Different industries have different specifications, spanning from light printing industries to heavy offshore oil & gas. A developer lacking extensive knowledge in this area will be unable to compete because it does not understand the varying users’ specifications.

Q: Is it an open wide scale concept where you decide the types of developments?

We need to meet certain JTC parameters. For example, Solaris was given a fixed allocation of 15% office space. For R&D complex Fusionopolis, we were required to provide the design and concept, and explain why we deserve this piece of land. These also form the intangibles to our assets.

West Park BizCentral could not be constructed like Solaris because it did not make commercial sense to have the same layout.  Architectural design is also highly dependent on area landscape.

Soilbuild REIT currently has 7 properties with a total valuation of S$935 million and occupancy rate of 99.7%. Company chart