IREIT GLOBAL Review 3Q16

IREIT Manager Fees

REIT Manager performance fees is based on a performance fee of 25.0% of the difference in DPU of financial year with the DPU in the preceding financial year multiplied by the weighted average number of Units in issue for such financial year.

Lease Expiry Profile

We will need to take a look at Münster South which the current lease will expired in 31 Mar 17, GMG Generalmietgesellschaft mbH, has exercised its lease extension option, and will continue to occupy 5 of the 6 floors for another 2.5 years upon expiry of the current lease.

The Manager is in the process of repositioning the Münster South building as a multi-tenanted property, and is concurrently in discussions with third parties to lease the vacant space.

This situation has shown us even with strong tenant, it is not always the tenant will extend and lease the whole building. Münster Campus lease extension will be in 2.5 years term.

The next lease expiry we will need to watch is from 2018 onward especially for Munster campus where the North building will expired in 2022 as it will be on 2.5 years term and concord will have 34% expired in 2018.

Average WALE is 6.2 years

1. 1.2% income due in 2017
2. 4.4% income due in 2018
3. 8.5% income due in 2019
4. 85.9% income beyond 2020  

IREIT Manager Changes

We will need to observe how the new IREIT manager will perform as it will open up the REIT to include Industrial and Retail Property as part of the assets.

The current IREIT Manager will be taken over by Tikehau Investment.

Gearing and Debt Profile

IREIT is currently geared around 42% with the following debt profile which should not be a concern at the moment till 2019

1. 23.8m due in 2017
2. 97.3m due in 2019
3. 77.5m due in 2020

Effective Interest currently is 2% with Interest Cover Ratio of 8.3 times which is pretty high cover.

Dividend Yield

There is no much track record of this REIT as it was only launch is Q3 2014 and with the changes of IREIT Manager, the past record might be no longer really relevant on how the new IREIT Manager will grow this REIT.

Currently yield around 8.5% which should be stable enough if

1. Europe Interest Rate remain low which as of current there is no pressure to hike the rate
2. Currency of EUR against SGD to remain stable
3. Able to lease out the vacant floor for Münster South however even it is not manage to lease out all, it should be temporary issues till the manager lease it out.

Risk

Few of the Risk I can think of

1. Tenant Concentration, even it is support by the strong tenant the case of Münster South has shown us there is always a risk when the key tenant lease expiry does not guarantee the tenant will extent the lease the whole building.
2. Currency Risk
3. Interest Rate
4. Jinquan Tong is currently hold more than 50% of the shares and this can be good or bad to the minority shareholder interest
5. Munster Campus will be one of the weakest property after the main lease expire in 2017 for South Building and 2022 for North Building as the lease term will be in 2.5 years

Mapletree Greater China Trust Review 1H FY16/17

My simplify Mapletree Greater China Trust (MGCCT) Review

 Note: The below is my personal review, please ensure you do your own homework.

1.       Gearing around 39.9%

The debt need to watch will be those that mature in March 2018, 2019 and 2020 as it is about 29%, 16% and 16% of the total debt.

Based on the trend of issuance of the bond the average interest rate might be going up to 3.5% from the current 2.9% this is basically an increase about 60bps. With the guidance provided, the dividend we should expect it to drop around 0.035 cents and this translate about 0.4% drop.

2.       Lease Expiry

For FY16/17, The management has managed to have positive rental revision, the next risk will come when MGCCT need to secure the renewal with no change or positive rental revision in FY17/18 as this is the first bulk (36.5%) of the lease will expired and follow by FY18/19 of 23.5% expiry.

For FY16/17, the concern here is for

·         Festival Walk where it is account 21% and with the retail market challenge and new office supply.

·         Gateway Plaza where the vacancy rate in Beijing is climbing

3.       Price to Book Value

Based on 95 cents and Net Asset of $1.19 this translate MGCCT is currently on discount of 20%

4.       Future Acquisition

There is a potential acquisition in 2018 on-ward as the sponsor new office building will be ready, depend on when it will dump into MGCCT.

5.       Dividend Yield

Based on 95 cents, it is currently yielding about 7.5%.

The dividend has been growing from 6.2 cents in 2014 to 7.2 cents in 2015. With uncertainty in retail market and office supply in Hong Kong and Beijing plus the cost of borrowing likely to increase in the future, I will just assume there is no growth in dividend.

6.       REIT Manager Fees

REIT Manager performance fees is based on a performance fee of 25.0% of the difference in DPU of financial year with the DPU in the preceding financial year multiplied by the weighted average number of Units in issue for such financial year.

7.       Risk

·         The gearing is pretty on high end for my risk appetite

·         Interest Rate hike

·         Retail challenge in Hong Kong

·         New supply in Hong Kong and Beijing

8.       VAT and Property Tax Implementation – Clarified with MGCCT

Sandhill Plaza is not subjected to change in the property tax as of now.

Sandhill Plaza is an onshore entity hence the applicable VAT is 5%

Gateway Plaza is impacted with the property tax changes and currently applying 11% VAT

1H FY16/17 Revenue is already reported net of VAT

First REIT Review - a REIT that I am happy with 6.5% dividend and growing

My Reason why I own First REIT

1. Gearing around 30%

Thing to note here even the gearing drop, it is basically replaced by perpetual securities

2. Lease Expiry

With the earliest expiry in 2021, it will be good to keep for another at least 4-5 years and I will need to watch out when it coming near to 2020 if the management will be proactively renew the lease

3. Price to Book Value (PB Ratio)

With current price of $1.3 and Book value of $1.029, it translates to PB 1.26. It is trading at the premium of 26% which I am comfortable with due to the it is on healthcare class and defensive of the assets

4. Future Acquisition

The sponsor has plenty of property to be injected into First REIT

5. Yield

Looking in the past 4 years (2011-2015) it has been growing from 7 cents to 8.3 cents which is about 4% CAGR. Please note in 2012 there is a distribution included from the gain of disposal.
With 2016 near the end it is likely to end up with 8.46 cents and if we to include this fifth year the CAGR will around 3%.

Assuming nothing change in 5 years ahead and based on 2% increment on the dividend, we will end up with around 0.0916 dividend and with the current price this will translate into 7% yield
And with the new acquisition coming, this will further increase the yield.

6. Management Ownership

DR Ronnie has been one of the active to buy from the market and this is a positive sign to own First REIT

7. Risk I am taking

1. Interest rate hike will impact the distribution.
2. Large concentration of the lessee of Lippo Group
3. De listing... there is a rumour on this, however the management has clarified this.
4. Feel Free to share with me :)

Post on First Reit