Viva Industrial Trust - My First Foray Into Industrial REITs

Today (actually it's yesterday since it has passed midnight) marks my first foray into the industrial class of REITs if I don't consider Mapletree Logistics Trust as industrial.

Viva Industrial Trust is not a pure industrial REIT. It has a hotel among its properties.

I have been monitoring Viva Industrial Trust for some time. When the price dropped more than the dividend post-XD today, I decided to take advantage of this and buy into this counter @ $0.955.

Ideally I would like to go in below $0.95 but guess I am not that disciplined.

Results from Viva's latest quarter look promising.

Comparing Y-o-Y and Q-o-Q,

Other results,

Gearing is reasonable at <40%.

WALE is 2.8 years. To be honest I would prefer this to be higher.

And portfolio occupancy is 90.9%.

As a matter of fact, the above figures allude to the good fundamentals and good management of the trust.

Furthermore with the opening of the Downtown line station connecting directly to UE BizHub East, there is a real possibility of upcoming positive rental reversion and increment of the property value.

However the deal clincher for me is the AEI done for their Viva Business Park (VBP) in Chai Chee. I've been to VBP several times in the past for business meetings before they commenced the AEI.

Post-AEI, I've went back several times with my wife and what a world of difference the initiatives made!

The most obvious improvement is the number of retailers and anchor tenants such as Harvey Norman and Decathlon taking up space in the business park.

This is a far cry from the old VBP where majority of the tenants are commercial entities and the only retail shops on the ground floor are cafes and such.

The effort made for the AEI is actually visually-obvious. It changes the whole vibe of the business park. And I have to say I am impressed by what I see.

Paying at $0.955 a piece for Viva means paying a premium to its NAV and this is usually what I don't do.

However I see limited downside and much upside to the price due to the increased buying interest in this REIT, value-realisation of UE BizHub East and potential of increased income from VBP.

The way I see it, Viva will break $1.00 soon.

My plan when I placed the queue order today was this:

a) If the price appreciated within these few days, I might do a short term trade.

b) If the price drops, I will hold as part of my income portfolio. A dividend yield of nearly 8% doesn't hurt.

Cheers.

Recent Action - Mapletree Logistics Trust

Taking advantage of the dip in price, I purchased 10,000 shares of Mapletree Logistics Trust (MLT) today as my maiden entry to the Mapletree family.

Has been eyeing several of the Mapletree counters in my watch list for some time and ironically my first choice in the Mapletree family is actually another trust : )

Anyway the reasons for purchase are summarised as follows.

The recent news concerning logistics players such as FLT and GLP signal a favourable outlook for this sector as a whole.

With a diversified portfolio in 8 countries, MLT presents a good choice with exposure to growth in the APAC region.

And add a well spread of tenants to the equation. I like the fact that the biggest sector of tenants accounts for just 24% of the revenue contribution. This is from the F&B sector by the way.

Exposure to the troubled oil & gas and marine sectors is also limited as they account for only 5%.

Customers-wise, none account for more than 5% of total gross revenue. I find this a good hedge against any major upheaval in specific industries.

Weighted lease term to expiry (WALE) of over 4 years. Although this is not too long in my opinion, I am not overly concern with this.

After all there is no one anchor tenant account that makes up a substantial portion of the revenue where it can skews the results upwards (or downwards!).

Furthermore a lower WALE might be advantageous to MLT since it has shown positive rental reversions in China, Vietnam, Japan and Hong Kong.

Portfolio occupancy remains high at 95.5% despite a slight decline from previous quarter. This can be be explained by the transitional downtime from a property in South Korea.

Importantly, occupancy rates from other countries actually improved from the last quarter.

93% of leases that expired in 1Q FY17/18 has been renewed or replaced.

Freehold and long leasehold properties. About 30% of MLT's portfolio is freehold and average expiry to their leasehold land is 47 years. Pretty long if you ask me.

Talking about portfolio, I also like the current and future yield-accretive acquisitions and AEIs by MLT.

Even with lower contributions from the South Korean property and absence of contribution from one block of Ouluo Logistics Centre, MLT's gross revenue actually grew by 7% year on year and NPI grew by 7.5%.

Nice!

Of course DPU increased of 2% year on year and 1.5% quarter on quarter doesn't hurt ; )

Risks

Total outstanding debt increased by S$18 million. However approximately 79% of total debt has been hedged into fixed rates.

Continued pressure over the increased in supply of warehouse space locally. However this is mitigated by the renewal and replacement of expiring leases as well as positive rental reversions in other markets.

Lastly, I'm paying a slight premium to the NAV. Not my usual style. But I feel the upsides outweigh this hence this purchase.

Note: Figures obtained from 1Q FY17/18 financial results.