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Financials

SoilBuild Business Space REIT Unaudited Financial Statements and Distribution Announcement for The Fourth Quarter ("4Q FY2020") and Financial Year From 1 January 2020 to 31 December 2020 ("YTD FY2020")

Financials Archive

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Summary of Soilbuild Business Space REIT Group Results

Footnotes:

1. Financial year from 1 January 2020 to 31 December 2020, hereinafter referred to as YTD FY2020.
2. Financial year from 1 January 2019 to 31 December 2019, hereinafter referred to as YTD FY2019.
3. Financial period from 1 October 2020 to 31 December 2020, hereinafter referred to as 4Q FY2020.
4. Financial period from 1 October 2019 to 31 December 2019, hereinafter referred to as 4Q FY2019.
5. n.m denotes not meaningful.

Statement of Total Return and Distribution Statement for 4Q FY2020 & 4Q FY2019 and YTD FY2020 & YTD FY2019

Footnotes:

1. Includes manager’s fees in units, unrealised/capital foreign exchange gains/losses, unrealised gains/losses on derivative financial instruments, amortised debt arrangement, prepayment and structuring fees, non-tax deductible financing expenses, trustee fees, non-tax deductible funding cost for the Australia acquisitions, foreign subsidiaries’ income not yet remitted to Singapore, net change in fair value of investment properties, etc.
2. This relates to the distribution of income repatriated from Australia by way of tax deferred distributions. Such distribution is deemed to be capital distribution from a tax perspective and is not taxable in the hands of Unitholders, except for Unitholders who are holding the Units as trading assets.

Balance Sheet

Review of the Performance on YTD FY2020 compared to YTD FY2019

Gross revenue was S$93.4 million in YTD FY2020 which was S$4.4 million or 4.9% higher year-onyear ("y-o-y"). 25 Grenfell Street contributed S$9.7 million higher revenue. The increase in revenue was partially offset by lower contribution from 2 Pioneer Sector 1, Tuas Connection and Solaris amounting to S$3.3 million, S$1.4 million, S$0.8 million respectively.

Property operating expenses of S$20.9 million in YTD FY2020 were S$2.9 million or 16.1% higher mainly due to S$3.7 million higher expenses for 25 Grenfell Street and S$0.4 million provision for rent waivers. This was partially offset by S$0.6 million lower expenses for 72 Loyang Way which was divested in April 2020, S$0.4 million lower expenses for Solaris and Tuas Connection each.

Net property income was 2.1% higher at S$72.5 million in YTD FY2020 from S$71.0 million in YTD FY2019 mainly due to the acquisition of 25 Grenfell Street in November 2019. Net property income margin was 77.6%. The reduction in net property income margin by 2.1 percentage points was mainly due to the provision for rent waivers, lower net property income margin for 2 Pioneer Sector 1 and the acquisition of the multi-tenanted 25 Grenfell Street.

The decrease in interest income of S$0.3 million was due to the placement of preferential offering proceeds in fixed deposit accounts in FY2019, coupled with lower interest rate in FY2020.

Foreign exchange gain of S$2.7 million comprises largely unrealised foreign exchange gains relating to the revaluation of Australian dollar denominated monetary assets and liabilities. The Australian dollar strengthened against the Singapore dollar at 31 December 2020 versus 31 December 2019.

Loss on derivative financial instruments relates to unrealised loss on interest rate swaps that do not qualify for hedge accounting.

Loss on divestment of a property held for sale relates to the divestment of 72 Loyang Way.

The reduction in finance expenses (excluding finance expenses on leases) of S$0.9 million was mainly attributed to lower weighted average borrowing costs. The reduction of finance expenses on leases (FRS 116) of S$0.5 million was due to the capitalisation of finance expenses relating to the redevelopment of 2 Pioneer Sector 1 and divestment of 72 Loyang Way.

The increase in Manager’s management fees of S$0.1 million was due to higher distributable income which resulted in higher base fee.

Other trust expenses comprised largely professional fees and on-going listing expenses. The increase in other trust expenses of S$0.5 million was largely attributed to higher professional fees in relation to the Trust Scheme announced on 14 December 2020.

Net change in fair value of investment properties comprised mainly revaluation losses for 2 Pioneer Sector 1 (based on plot ratio of 1.0), Solaris, West Park BizCentral, Bukit Batok Connection, Eightrium, 39 Senoko Way and 25 Grenfell Street amounting to S$23.5 million, S$15.9 million, S$8.8 million, S$5.5 million, S$5.1 million, S$2.0 million, S$1.5 million and was partially offset by revaluation gains for Inghams Burton of S$6.2 million.

Tax expense relates to deferred tax and withholding tax on unitholder loan interest income. The increase in tax expense of S$1.1 million was mainly due to the provision of deferred tax liability for the Australia portfolio.

Non-tax deductible items increased by S$43.3 million mainly due to higher add-back of non-tax deductible revaluation losses on investment properties.

Capital distribution rose S$3.5 million y-o-y due to the distribution arising from the acquisition of 25 Grenfell Street on 1 November 2019.

Total amount available for distribution to Unitholders was S$49.8 million in YTD FY2020, 2.6% higher y-o-y as explained above.

Review of the Performance on 4Q FY2020 compared to 4Q FY2019

Gross revenue was S$24.1 million in 4Q FY2020 which was S$1.2 million or 5.4% higher y-o-y. 25 Grenfell Street and West Park BizCentral contributed S$1.5 million and S$0.4 million higher revenue respectively. The increase in revenue was partially offset by lower contribution from 2 Pioneer Sector 1 which is under redevelopment and 72 Loyang Way which has been divested in April 2020 amounting to S$0.4 million and S$0.2 million respectively.

Property operating expenses of S$4.8 million were S$0.5 million or 10.1% lower due to (i) reversal of S$0.2 million of provision for rent waivers in 4Q FY2020; (ii) S$0.2 million lower expenses for 2 Pioneer Sector 1 as costs are capitalised during the redevelopment phase (iii) S$0.2 million lower expenses for 72 Loyang Way due to the divestment and (iv) S$0.1 million lower expenses for Tuas Connection, Solaris and Eightrium each. The reduction in property operating expenses was partially offset by S$0.4 million higher expenses for 25 Grenfell Street.

Net property income was 10.1% higher at S$19.2 million in 4Q FY2020 from S$17.4 million in 4Q FY2019 mainly due to a full quarter of revenue contribution from 25 Grenfell Street in 4Q FY2020. Net property income margin was 79.9%. The increase in net property income margin by 3.5 percentage points was mainly attributed to the improvement in NPI margins for several multitenanted properties such as 25 Grenfell Street, Eightrium, Tuas Connection and West Park BizCentral.

The decrease in interest income of S$0.2 million was due to the placement of preferential offering proceeds in fixed deposit accounts in FY2019, coupled with lower interest rate in FY2020.

Foreign exchange gain of S$0.8 million comprises largely unrealised foreign exchange gains relating to the revaluation of Australian dollar denominated monetary assets and liabilities. The Australian dollar strengthened against the Singapore dollar at 31 December 2020 versus 31 December 2019.

Loss on derivative financial instruments relates mainly to unrealised loss on interest rate swaps that do not qualify for hedge accounting.

The decrease in finance expenses (excluding finance expenses on leases) of S$0.6 million was mainly attributed to lower weighted average borrowing cost in 4Q FY2020. The reduction of finance expenses on leases (FRS 116) of S$0.2 million was due to the capitalisation of land rent for 2 Pioneer Sector 1 and divestment of 72 Loyang Way.

The increase in Manager’s management fees of S$0.4 million was due to higher distributable income which resulted in higher base fee.

Other trust expenses comprised largely professional fees and on-going listing expenses. The increase in other trust expenses of S$0.3 million was largely attributed to higher professional fees in relation to the Trust Scheme announced on 14 December 2020.

Tax expense relates to deferred tax and withholding tax on unitholder loan interest income. The increase in tax expense of S$0.8 million was mainly due to the provision of deferred tax liability for the Australia portfolio.

Non-tax deductible items were S$49.0 million higher mainly due to higher add-back of non-tax deductible revaluation losses on investment properties.

Capital distribution rose S$2.0 million largely due to the inclusion of 2QFY2020 capital distribution previously withheld in the 4QFY2020 capital distribution.

Total amount available for distribution to Unitholders was S$15.2 million in 4Q FY2020, 30.2% higher y-o-y as explained above.

Commentary

On 14 December 2020, the Manager and Clay Holdings III Limited (the "Offeror") jointly announced the proposed acquisition (the "Scheme Acquisition") of all the issued units of Soilbuild REIT by the Offeror to be effected by way of a trust scheme of arrangement (the "Trust Scheme") in accordance with the Singapore Code on Take-overs and Mergers (the "Joint Announcement").

In conjunction with the Trust Scheme, the Manager also announced on 14 December 2020 that DBS Trustee Limited (in its capacity as trustee of Soilbuild REIT) and a wholly-owned subsidiary of Soilbuild REIT, Soilbuild Business Space Holdings Pte. Ltd., entered into a unit sale agreement (the "Australian Asset Disposal Agreement") with Clay SG Holdings II Pte. Ltd. and Clay SG Holdings III Pte. Ltd. (collectively, the "Blackstone Purchasers") for the disposal of 104,100,000 units in Soilbuild Australia Trust, representing 100 per cent. of the entire issued and paid-up units of Soilbuild Australia Trust, to the Blackstone Purchasers, upon the terms and subject to the conditions of the Australian Asset Disposal Agreement (the "Australian Asset Disposal") (the "Australian Asset Disposal Announcement").

Subject to, among others, approvals by the unitholders of Soilbuild REIT, sanction of the Trust Scheme by the Singapore Court and the satisfaction of other regulatory approvals and conditions, the Scheme Acquisition and the Australian Asset Disposal are currently expected to be completed by end-March 2021 / early April 2021. Further information on the Scheme Acquisition and the Australian Asset Disposal can be found in the Joint Announcement and the Australian Asset Disposal Announcement respectively.

Singapore

Based on advance estimates released by the Ministry of Trade and Industry on 4 January 2021, the Singapore economy contracted by 3.8% year-on-year ("y-o-y") and grew by 2.1% on a quarter-onquarter ("q-o-q") seasonally-adjusted basis. For the whole of 2020, the Singapore economy contracted by 5.8%.

The manufacturing sector expanded by 9.5% y-o-y in the fourth quarter. Growth of the sector was supported primarily by output expansions in the electronics, biomedical manufacturing and precision engineering clusters, which outweighed output declines in the transport engineering and general manufacturing clusters. On a q-o-q seasonally-adjusted basis, the manufacturing sector contracted by 2.6%.

The Singapore Purchasing Managers’ Index rose to 50.5 in December 2020 from 50.4 in November 2020. This marks the sixth month of expansion for the overall manufacturing sector.

According to the JTC 3Q 2020 market report, the rental index of all industrial space receded 0.9% and 1.6% q-o-q and y-o-y respectively. In particular, the rental index of multiple-user factory fell 1.1% and 2.1% q-o-q and y-o-y respectively.

In 3Q 2020, the all-industrial occupancy rate rose 0.2% and 0.3% q-o-q and y-o-y respectively. The q-o-q occupancy uplift was mainly attributed to warehouses which recorded 0.8% and 1.0% growth q-o-q and y-o-y respectively.

The Government has introduced the Re-Align Framework with effect from 15 January 2021 for businesses with annual revenue not exceeding S$30 million at a global group level and have experienced at least 70% y-o-y fall in monthly average gross income in the second half of 2020. The framework will allow selected contracts to be renegotiated by way of mutual agreement with the counterparties, failing which the contract may be terminated within the provided parameters. Businesses will remain liable for outstanding obligations but will not need to pay early termination penalties.

Australia

In the key economic indicators snapshot released by the Reserve Bank of Australia dated 7 January 2021, the country’s economy and key indicators reported negative economic growth at 3.8%, inflation at 0.7%, unemployment rate of 6.8%, employment growth rate of negative 0.6% and wage growth of 1.4%. The nation’s official cash rate remains at 0.10%.

Office vacant leasing and tenant demand are expected to be soft over the next 12 months, leading to protracted decision making by prospective tenants. Industrial properties, particularly fully leased assets with long weighted average lease to expiry and strong lease covenants have been the preferred asset class for many investors as such properties have shown resilience during the COVID-19 pandemic.