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

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.

BREXIT and 1H 2016 income from S-REITs.

My income from S-REITs in 1Q 2016 received an enormous boost from Saizen REIT's distribution which was partially a return of capital. I said I had mixed feelings about the matter and, actually, it has created another issue for me. 

Cash as a part of my portfolio is now quite large.

Is this a problem?

Of course, keeping some excess money in savings accounts and fixed deposits is always a good idea. These are our war chests. 





However, too much cash (earning too little) and we won't be able to keep up with inflation which is one reason why we invest for income. We want to beat inflation or, at least, keep up with it. We don't want to see our wealth eroding.

To be quite honest, I am in no hurry to re-invest all the distribution received from Saizen REIT in 1Q 2016. 

Approximately, I received 8 years worth of "dividends" (in the guise of capital gain) at one go. So, I have quite a bit of time to wait for good investment opportunities. 

In the meantime, some of my cash is in OCBC 360 and UOB ONE, with most of my cash getting 0.8% to 1.9% in interest income from savings accounts and fixed deposits which are virtually risk free.

However, being mortal (and fallible), I couldn't help but nibble a bit at some S-REITs in 2Q 2016.





1. Cambridge Industrial Trust. I have been holding to a much reduced position in this REIT for many years and in 2Q 2016 decided to make a small addition to my position at 52.5c a unit. 

To be quite honest, I feel that AIMS AMP Capital Industrial REIT is probably a more attractive investment. The two REITs have comparable yields but AIMS AMP Capital Industrial REIT has a stronger balance sheet and a business strategy that leaves less to the imagination. 

However, I decided to go with Cambridge Industrial Trust this time because my investment in AIMS AMP Capital Industrial REIT is already quite big.







2. I-REIT Global. I only became an investor after some time from the IPO which I thought wasn't attractively priced enough and I added to my investment in the REIT last August at 65.5c a unit. 

I decided to nibble at 71c a unit in 2Q 2016 because even at that price, the distribution yield is still pretty attractive. I also like the REIT for its portfolio of German freehold office properties and their high quality tenants.

If BREXIT should spark a contagion, I would become a lot more cautious in adding to my investment in the REIT as its income is in Euros although having real estate in Germany, arguably Europe's strongest economy, I feel that there is some degree of stability.







3. Soilbuild REIT. I decided to add to my investment in the REIT which has seen a large decline in unit price due to issues with one of their tenants, Technics Offshore Engineering, which did not pay their rent.

The REIT has since been paid the firm's bank guarantee of $11.85 million by UOB. This is equivalent to 18 months of rental and it will give the REIT time to search for a new tenant.

In arriving at a price which I am more comfortable to buy at, I noted that the rent payable by Technics is almost $8 million a year which is about 10% of the REIT's revenue of $80 million a year. 

Assuming the REIT is unable to find another tenant after 18 months, without taking into consideration other costs, DPU would decline by 10% accordingly. So, happy with the distribution yield at 73c a unit back in December 2015, with the latest development, I decided that I would only add to my investment at 66c or so a unit.







Together, these nibbles used up less than 10% of the distribution I received from Saizen REIT in 1Q 2016. I think it is important to put them in perspective. They are really only nibbles.

S-REITs are leveraged income instruments. So, it won't be wrong to say that I remain wary as to how rising interest rates in the future could impact distributable income negatively, all else remaining equal.

There isn't anything retail investors like me can do but to be more conservative when it comes to debt and investments which depend largely on debt to bring home the bacon especially if growth is not particularly promising.






However, thanks to BREXIT, interest rates are likely to remain low in the near future and the most disadvantaged in the financial world are probably still the savers. In the search for higher yields, S-REITs are natural beneficiaries.

So, how much bacon did I receive from my investments in S-REITs in 1H 2016?

S$ 397,294.28








S-REITs remain relevant instruments for the income investor and I will continue to keep an eye on them, buying more of the ones I like if Mr. Market should go into a depression.

Related post:
1Q 2016 income from S-REITs.