Treasury Today Country Profiles in association with Citi

Soilbuild Business Space REIT

Soilbuild Business Space REIT, Highly Commended, Best Financing Solution

Roy Teo Seng Wah, Soilbuild Business Space REIT and Lim Him Chuan, DBS

This real estate investment trust (REIT) has excelled in showcasing its healthy debt structure and continues to be assured through a Baa3 rating on the MTN Programme it has signed. The financing programme now results in Soilbuild being 100% hedged for an average term of 2.3 years with a healthy weighted average debt maturity of 3.4 years.

Photo of Roy Teo Seng Wah, Soilbuild Business Space REIT and Lim Him Chuan, DBS.

Soilbuild Business Space REIT is a Singapore real estate investment trust (REIT) established with the principal investment strategy of investing on a long-term basis, directly or indirectly, in a portfolio of income-producing real estate used primarily for business space purposes in Singapore as well as real estate related assets.

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The challenge

The success of such real estate investments is heavily dependent on the financing capabilities and capital management of the REIT.

The solution

Soilbuild Business Space REIT (Soilbuild REIT) was listed on SGX-ST in August 2013. In April 2015, Soilbuild REIT demonstrated its financial capability, having successfully launched its first equity fund raising of S$90m via private placement to fund the acquisition of an investment property.

Concurrently, Soilbuild REIT established a S$500m medium-term notes (MTN) programme, and issued S$100m, 3.45% unsecured fixed rate notes due 2018 (“Series 1”) under the MTN programme to refinance the first tranche of a secured bank loan which expired in August 2016.

In September 2015, Soilbuild REIT completed the refinancing of a S$185m club bank loan to March 2020, leaving no refinancing requirements until FY2018, and in the process, negotiated for the release of mortgages over three properties valued at S$290m.

In March 2016, Soilbuild REIT was assigned a Baa3 investment grade issuer rating and a provisional (P)Baa3 rating on its MTN Programme by Moody’s Investors Service, Inc (“Moody’s”). In April 2016, Soilbuild REIT issued S$100m, 3.60% unsecured fixed rate notes due 2021 (“Series 2”) under its MTN Programme to refinance a secured bank loan. Series 2 was rated Baa3 by Moody’s.

Subsequently, in September 2016, Soilbuild REIT completed a well-subscribed non-underwritten preferential offering and entered into a S$45m unsecured bank facility agreement to fund the acquisition of an investment property.

Best practice and innovation

Soilbuild REIT has maintained a pro-active and prudent approach to capital management and has shown its capital management capabilities through its ability to raise both debt and equity efficiently via various financing options since its listing.

As at September 30th 2016, Soilbuild REIT had a healthy weighted debt maturity of 3.1 years with 88.5% of its borrowings fixed for an average term of 2.2 years. Soilbuild REIT’s current aggregate leverage stands at 36.0% which allows a debt headroom of S$88m based on its internal aggregate leverage ceiling of 40.0%.

In the span of one year from September 2015, Soilbuild REIT has largely through strategic refinancing, increased the proportion of its unencumbered investment properties from approximately 18.5% to 72.1% while keeping its borrowing costs low. This demonstrates the ability and success of Soilbuild REIT’s efforts to maintain a healthy capital management structure.

Private placement

New units were issued at a tight 2.1% discount to the adjusted volume weighted average trading price excluding advanced distribution, thus enabling the manager to achieve a DPU accretive acquisition, substantially funded by equity. The private placement also lowered Soilbuild REIT’s aggregate leverage and increased the debt headroom available for future acquisitions.

MTN programme

The establishment of the MTN programme enabled Soilbuild REIT to tap the capital market for lower cost unsecured financing as compared to traditional bank financing. The Baa3 credit rating on their Series 2 MTN issuance further lowered borrowing costs.

As Lim Hui Hua, Chief Financial Officer of Soilbuild REIT notes, “There are other considerations faced by REITs when accessing financing too. Smaller REITs may have fewer financing options due to considerations such as liquidity premiums and having to strike a balance between the tenor of the debt and borrowing costs. Credit rating agencies’ treatment of certain financing instruments such as perpetual securities is a concern as well.”

Key benefits

  • 88.5% hedged for an average term of 2.2 years.

  • Healthy weighted average debt maturity of 3.1 years.

  • Weighted average borrowing cost of 3.42% p.a.

  • Sound capital structure.

  • Debt headroom.

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