VIVA Industrial Trust IPO Notes

Another Industrial REIT IPO, this time from United Engineers. Not an inducement to buy. Just notes I picked up from the prospectus here.

  • Offering at 78 cents
  • Looks 40% Debt to Assets. Since this REIT is rated BB+ by S&P it can theoretically levered up to 60%
  • Finance cost of 3.5% per annum for FY 2014, 2015
  • Highest portion of business parks (77% of asset value). They believe that business parks carry a premium in rent over other industrial assets. But I believe they are saying this because they have majority of business parks so they are sugarcoating their assets
  • They will distribute 8.8% in FY 2014 and 9% in FY 2015. But excluding the effects of UE Bizhub East rental arrangement and TPCC rental support, the respective yield is only 6.1% and 6.7%
  • Land Lease of 45 years, more than Aims Amp less than Soilbuild Biz Trust
  • AMB Icheon and IASS Cold Storage logistics are Free hold but that is not the main bulk of the assets.
  • Management fee of 10% of distributable income and a 25% performance fee if the DPU is higher than the preceding year. This is similar to Soilbuild Biz Trust
  • Chai Chee Technopark have the shortest WALE and lowest occupancy, which is probably why they require income support. This is also where the manager sees that there is room to improve further. If the rental and occupancy gets fulfilled eventually it ends up as the projected distribution yield, else perhaps its closer to MIT but at a much higher gearing
  • The hotel looks to be leased out to an external operator, thus the investor do not need to contend about RevPar which is usually determined by demand. There of course runs the risk of the operator doesn’t want to operate any more, in that case VT-BT takes on the job of managing or finding a manager which during the interim period will take on more risk.
  • Some info on Eightrium versus UE BizHub EAST ( Page  144)
    • Eightrium is 8 years older
    • UE BizHub have a longer land lease (55 versus 53 years)
    • UE BizHub is closer to MRT
    • UE BizHub is fully integrated with more amenities
    • Eightrium was sold subject to payment of annual land rent, which exposes it to risks in future land rental escalation. UE BizHub EAST is sold with the land premium for the first 30 years fully paid thereby sheltering it from land rent escalation. It costs UE Bizhub EAST more than S$100 per sq ft per plot ratio to have it converted from annual land rent to land premium basis.
  • Valuation of properties
    • Long Term Business Park Rental Growth rate used: 2.5% – 4% with 3% being average
    • Long Term Hotel Rental Growth Rate Used: 1.5% – 3% with 2% being average
    • Capitalization Rate Used: 5.5-6.7% with 5.75 and 6.5% being average
    • Discount Rate: 7% – 8.25% with 7.5% and 8% being average
  • China Tycoon will own 43% of this REIT with UE owning 8% of it
  • Perhaps the strategy is for the China Tycoon to do what he did to Perennial dump assets in then reduce his holdings

VIVA Industrial Trust IPO Notes U3uDf4a

VIVA Industrial Trust IPO Notes aLqg4FN

 

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  • Orange

    Govt policy in COE tightening will see micro SME going bust.
    Transport is important to move goods and people.
    Earlier tightening of foreign labour are folding existing contracts….
    In short, indistrial reits will suffer. Office reits will do better.

  • http://www.productiveorganizer.com/ Kyith

    I think there will be a moderation but essentially most of the REITs sans AREIT and MIT are not so heavy on manufacturing. Being a logistics hub many MNC players will still require a presence here.

    i was thinking about the SME moving out. till now we haven’t see grave signs yet.

  • PH

    41% gearing if I am not wrong, this should be a miss for me.

  • Robin

    Among all the REITs IPO this year, only SPH Reit is up 8% from IPO price, the rest are still underwater.
    UE BizHub East is only 64% occupied as of Apr this year.
    The yield of 8.8% this year and 9% next year is just a target, it is not
    guaranteed!
    I will stay away from this one.