SINGAPORE (Mar 21): Soilbuild Business Space REIT (Soilbuild REIT) has agreed to sell its industrial property at 72 Loyang Way, and all of its mechanical electrical equipment, to Kim Hock Enterprise for a total consideration of $34.08 million.

The REIT is expecting net proceeds of about $34.055 million after accounting for divestment-related expenses, resulting in an estimated net gain of $55,000.

With a net lettable area of 171,293 sq ft, 72 Loyang Way comprises two blocks of three- and four-storey ancillary offices; two high ceiling single-storey production facilities; a blasting and spray painting chamber; a worker dormitory; and a jetty with 142 metres of sea frontage.

It is within the Loyang Industrial Estate on a number of JTC leasehold estate land titles, which collectively expire on 20 March 2038 with a remaining tenure of about 19 years as at Mar 21.

In a filing on Thursday, Soilbuild REIT manager says it believes its sale of the property will unlock and release capital back to the REIT.

Sale proceeds will be used to either repay borrowings to reduce the REIT’s aggregate leverages or fund future acquisitions, asset enhancement initiatives (AEI) or other growth opportunities to enhance returns to unitholders.

Citing “prolonged weakness in the marine offshore and oil & gas sector” –  coupled with JTC’s requisite for the anchor tenant to meet certain requirements, including occupying at least 70% of the premises’ gross floor area (GFA) – the manager remarks that it was also “challenging” to find a suitable replacement anchor tenant.

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Lastly, the REIT manager says it seeks to maximise 72 Loyang Way’s value considering its relatively short balance land lease tenure of 19 years, before its value declines further over time.

“Holding a low-yielding property indefinitely in anticipation of a recovery in the marine offshore and oil & gas sector may weaken current portfolio performance,” says the REIT manager.

With the divestment, Soilbuild's portfolio weighted average land lease is expected to improve to 48.2 years from 47.4 years, and its portfolio occupancy to 92.2% from the current 89.5%.   

Assuming that the divestment took place on Jan 1 2018, the REIT’s distribution per unit (DPU) for FY18 would have been 5.3 cents compared to 5.284 cents reported for the financial year.

Units in Soilbuild REIT closed 0.83% lower at 60 cents on Thursday.