Soilbuild REIT's Eightrium in Changi Business Park (Photo: REITsWeek)Soilbuild REIT's Eightrium in Changi Business Park (Photo: REITsWeek)

Ratings agency Moody’s Investor Services has downgraded Soilbuild Business Space REIT’s (Soilbuild REIT’s) credit rating outlook from stable to negative.

Moody’s has cited the Singapore-listed industrial REIT’s leverage, concerns over leasing strategies, and weakening demand for industrial space amongst reasons for the downgrade.

"The change in outlook to negative reflects our expectations that Soilbuild REIT's credit profile will weaken in 2017 following the lack of clarity on its leasing strategy for 72 Loyang Way, its partially debt-funded acquisition of Bukit Batok Connection and the pressure on occupancy rates in this challenging operating environment," said Rachel Chua, a Moody's Analyst, in its statement on 3 August.

The agency also expects Soilbuild REIT’s leverage to weaken to 39% in the 2016 to 2017 time period, up from 36.8% in 2015, which is close to the downgrade trigger level of 40%, said the agency.

Moody’s also pointed to difficulties surrounding Soilbuild REIT’s property at 72 Loyang Way, whose sole tenant, Technics Offshore Engineering, has been in rental arrears since early 2016.

Although the REIT has received SGD11.8 million of security deposits in cash, this will be exhausted in Q3 2017 and the REIT’s earnings will come under pressure thereafter, said Moody’s, who added that it does not expect 72 Loyang Way to be fully leased given current lack of demand for industrial spaces.

In addition to these issues, Moody’s highlighted Soilbuild REIT’s plan to acquire Bukit Batok Connection for a total purchase consideration of SGD100.49 million, and its intention to fund the acquisition with a mix of unsecured debt and equity.

At 30 June 2016, the Soilbuild REIT’s overall portfolio occupancy has weakened to 92% from 96.8% in 2015.

Moody’s has however affirmed the REIT’s provisional (P) Baa3 rating on the REIT’s senior unsecured notes component of its SGD500 million multicurrency debt issuance programme and the Baa3 rating on Soilbuild REIT’s SGD100 million senior unsecured notes.

Units of Soilbuild REIT finished its trading day flat on the Singapore Exchange at SGD0.67.

By Ridzwan Rahmat

Ridzwan has been analysing REITs and business trusts since 2008, and personally manages a portfolio comprising mainly of SGX-listed REITs. He founded REITsWeek in 2013.