LMIR: More acquisitions and lesser DPU again.

The latest acquisitions of Pejaten Village and Binjai Supermall will further reduce DPU.

Of so many REITs I am vested in, LMIR is one which has constantly disappointed in more ways than one.

The management has listed the advantages of acquiring these malls and they sound like a rehash from their equally distasteful purchase of 4 malls recently:

1. Acquisitions are at a discount to NAV.
2. Enhance earnings of the Trust.
3. Properties are of good quality.
4. Increase economies of scale in operation and marketing.
5. Minimise concentration risk.

The price tag for the purchase of the two malls: $126.5m
NPI of the two malls: $7.0m
NPI yield: 5.53%

Just like its recent purchase of 4 malls, these acquisitions are not NPI yield accretive. NPI yield of the REIT's portfolio is being gradually diluted with these overpriced purchases.

It does not matter that purchases are at a discount to valuation. They are still too expensive if ordinary unit holders are getting less income even as the REIT's asset base grows! If there is nothing worth buying, don't buy anything. Doesn't sound too difficult or does it?

The primary beneficiary here is the REIT's manager as they will be paid an Acquisition Fee equal to 1% of the purchase price which works out to be about $1.3m!

I think Ms. Viven Sitiabudi should consider retiring as CEO.

Read announcement: here.

Related post:
LMIR: More benefits from acquiring 4 malls?

Dynasty REIT: At what price would I bite?

Recently, I received quite a few emails regarding Dynasty REIT.

With full page ads taken out in the newspapers, few could have missed the promise of an approximate 7% distribution yield. It seems that the REIT is generating quite a bit of interest in the current low interest rate environment.

I have not subscribed to any IPOs in many years, believing that they are on terms which are more in favour of the issuers. Of course, there are cases in which IPOs have done quite well because Mr. Market's sentiment towards them was favourable.

So, for people interested in IPOs, they should develop the ability to read Mr. Market's mind! Personally, I already have great difficulty reading Mr. Market's mind with the help of charts. Without any trading history (i.e. no charts), it is a tall order indeed for me to read Mr. Market's mind towards IPOs.

For example, some people were saying that the unit price of Religare Health Trust would probably do very well because the public tranche was 13.5x over subscribed. On the first day of trading, it tanked 10%. It is still trading below its IPO price today.

What about Dynasty REIT? Could its unit price tank 10% on the first day of trading too? Who knows? I have said before that as an investor for income, I am more concerned with the distribution yield and that any capital gain is a bonus. Of course, we want to avoid any loss of capital at the same time. How do we do this? Buy when things are inexpensive. So, is Dynasty REIT's IPO price inexpensive?

Shanghai International Capital Plaza:
29 floors office and retail building plus a basement.
Committed occupancy rate: 86.8%

The promised distribution yield of about 7% per annum is largely achieved through a waiver of entitlement to income distributions by sponsor units. Now, the sponsor is not being altruistic or generous. It has to do this in order to make the IPO attractive. Without the sponsor waiver, the distribution yield would approximate 4% only. A big difference.

Of course, there are many assumptions that could be made for a possibly higher income distribution over time which could make up for the loss of the sponsor waiver by December 2017. However, we would be counting the chickens before they are hatched and in this case, we are not even sure we have the eggs for counting.

This IPO is heavily engineered and, in my opinion, at 85c to 91c a unit, it is not a good value proposition. I could be interested in initiating a long position if its unit price were to be closer to 55c a unit.

You might also be interested in these blog posts:
1. Religare Health Trust: 8.5 to 9% yield.
2. Perennial China Retail Trust: A weak debut?