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Why VIVA Industrial Trust not in AK's shopping list?

Tuesday, June 28, 2016

AK gets asked about VIVA Industrial Trust from time to time and why AK never blog about the REIT? Alamak. It happened again today. 

I decided to share this exchange I had with a reader and without saying too much, I hope it is clear enough:

Hi, AK


I have been your reader since 2013 when my trekking friends recommended you to me. You have been talking to yourself about REITs and i faithfully followed it. Thanks to your generous sharing,  I have benefited too. 

I have 87 lots during IPO and am thinking of switching them to other REITS.I searched for Viva Industrial Trust (T8B) in your blog, but i could not get any information about it at all.  If you are free, don't mind sharing some thought about Viva Industrial Trust (T8B). Or  Viva Industrial Trust (T8B) never in your shopping list at all.

Thank you very much for your time and please keep talking to yourself.

Thank you and wish you have a nice week ahead!!

Regards,
A



Hi A,

I looked at Viva before and I was going to publish a blog post on it in 2014 but decided not to. In essence, I wasn't interested in the REIT because:

1. I was not sure that UE Bizhub's valuation was realistic.

2. I didn't like that its Chai Chee property had 17 years left to its lease. Now, 15 years left.

3. I was wary of the massive financial engineering to boost dividend yield which would otherwise have been 25% lower.

I just didn't feel good about the REIT. I still don't.

Best wishes,
AK


Other examples of financial engineering:
1. K-REIT: 17 for 20 rights issue.
2. OUE C-REIT.

A blog post on leasehold properties:
OUE H-Trust: Considerations and comparisons.

20 comments:

Kevin said...

Sorry off topic a little but do you have any thoughts for Croesus Retail Trust’s Proposed Internalisation of Trustee-Manager?

AK71 said...

Hi Kevin,

Look out for tomorrow's blog post. ;)

Kim said...

Hi AK
Can you do a post on talking to yourself the list of your favourite REITS based on each of their current situation/price. Can ? Thank u.

AK71 said...

Hi Kim,

Nah. That is a lot of work. I am lazy. ;p

Kevin said...

Hi AK,

I will stay tuned. :)

Kim said...

Hi AK
Sob sob... :(
Thanks for always sharing :)

AK71 said...

Hi Kevin and Kim,

You are welcome. ;)

ah kang said...

Hi AK,

what are some of the metrics you look at to determine whether the management had used excessive financial engineering to make the financial results look better than it actually is?

Capricon said...

Hi,
Investmentmoats shared his thoughts on Croesus internalization of the Manager:
http://investmentmoats.com/money-management/high-yield-investing-money-management/7-thoughts-croesus-retail-trusts-proposed-internalisation-trusteemanager/

True enough, why not internalise first before the recent purchase ?

AK attending the EGM?

Cheers

Sillyinvestor said...

AK,

How do you determine if Biz Hub valuation is realistic, by peer comparison of Cap rate? Or is there something else that bother u?

Hoping to learn to fish better

jojo said...

Hi AK,
You must be every Singaporean Investor's favourite Online Uncle ... everyone's begging you to talk to yourself, and eavesdropping, of course! ;)

Well, I know I am one of those eavesdroppers :)

AK71 said...

Hi ah kang,

Any form of financial engineering is frowned upon. ;p

AK71 said...

Hi Capricon,

I am sure we can make speculations as to why. Your guess is as good as mine. I try my best to avoid doing this but I am probably guilty of this myself from time to time.

In my blog post today, I have instead looked at some hard numbers to see if internalising the manager for Croesus Retail Trust is at a price too high. :)

AK71 said...

Hi Mike,

Aiyoh, don't like that say. You are an accomplished fisherman liao. ;)

I am sure there are many ways of doing this but in this case, it was pretty easy because UE tried to sell UE Bizhub before but was unable get the price they wanted. Then came VIVA's IPO in which UE were able to sell the property at the price they wanted. The property was not generating an income that made sense at that price and, therefore, the income support.

AK71 said...

Hi jojo,

Uncle... That's depressing... -.-"

I think I shall take a vow of silence from now... :(

Chen Alan said...

Ha...
You have too many readers.

AK71 said...

Ho Lee Group Trust sold 789,700 units of VIT at an ave price of 76.09c per unit on July 29 and August 1.

Mr. Michael Tan Hai Peng's (non-exec director of VIT) deemed interest in VIT drops to 9.4%.

My Provider said...

Hi AK71,
May I Know what do you mean by "massive financial engineering" with regard to VIT. How do you arrive at 25% lower for the dividend yield?

EM

AK71 said...

Hi EM,

The income distribution is partly made up of rental support for UE BizHub. This support given by the seller of the property to the REIT will expire in November 2018. At the time of IPO, without this rental support, the distribution yield would have been much lower.

AK71 said...

From my FB wall:

Eric Kua:
Unless the Reit is able to grow its revenue to make up the shortfall

AK:
Unlikely that it will be able to make up all the shortfall

Eric Kua:
Why makes you say that?

AK:
Do you think it will be able grow revenue to make up all the shortfall?
I did some research into this but in a nutshell:
1. To grow revenue, it will have to increase rent for existing tenants by double digit percentages. In a soft rental market, how likely is that to happen?
2. If it is unable to do that, it will have to acquire new assets to increase revenue but its gearing is already very high. Not much room left to make DPU accretive acquisitions.
When the rental support expires, a decline of 10% or more in DPU would not surprise me.

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