New IPO Coverage - IREIT Global

From Company's Prospectus

1. Business Description

First European-focused REIT; initial focus on Germany & UK. IREIT is a Singapore real estate investment trust established with the investment strategy of principally investing, directly or indirectly, in a portfolio of income-producing real estate in Europe which is used primarily for office purposes, as well as real estate-related assets. IREIT is expected to have an initial primary focus on Germany and the United Kingdom.

IPO portfolio comprise four office properties in Germany. The IPO Portfolio will comprise four office properties in Germany, strategically located in Bonn, Darmstadt, Münster and Munich, with an aggregate net lettable area (“Net Lettable Area” or “NLA”) of 121,506 sq m (1,307,878 sq ft).

From Company's Prospectus

Bonn Campus, which is wholly-leased to GMG Generalmietgesellschaft mbH (“GMG”), a
wholly-owned subsidiary of Deutsche Telekom AG (“Deutsche Telekom”), and which
comprises four linked modern office buildings of two, four or six storeys. The property is
located in proximity to a key motorway of Bonn and is located in one of the prime office areas
of Bonn, where the headquarters for Deutsche Telekom are located

Darmstadt Campus, which is wholly-leased to GMG and comprises six connected office
buildings with seven and five storey sections, and a multi-storey car park, located at the main
cluster of technology companies. The property is part of one of the largest clusters of
Deutsche Telekom offices outside of Bonn and is located adjacent to a number of other
offices occupied by Deutsche Telekom, including the cellular division of Deutsche Telekom,
T-Mobile Deutschland GmbH (“T-Mobile”)

Münster Campus, which is wholly-leased to GMG, houses offices occupied by Deutsche
Telekom and comprises two six-storey modern office buildings and a six-storey external car
park structure. The buildings are located in a main business park housing leading financial
institutions and global technology firms

Concor Park, which is a multi-tenanted property comprising three linked, recently fully
refurbished five-storey office buildings with a separate car park and is located in the Munich
suburb of Aschheim-Dornach. The property is adjacent to urban and inter-urban rail stations
serving Munich and the surrounding area. The tenants include Allianz Handwerker Services
GmbH (“Allianz”), European Bank for Fund Services GmbH (“Ebase”), ST Microelectronics
GmbH (“ST Microelectronics”) and other leading companies

Below summarize the properties key terms:

From Company's Prospectus

Mr Itzhak Sella is the ultimate sponsor of the REIT; Mr Tong Jinquan is the Strategic Partner. Mr Itzhak Sella is the ultimate sponsor of the REIT while Mr Tong Jinquan is its strategic partner.

However after the IPO, Mr Tong will be the biggest shareholders of IREIT:

From Company's Prospectus

This 2 characters might be unfamiliar for fellow investors, below provide a quick summary on them:

Itzhak Sella - Refer to his Linkedin Profile (Link: https://www.linkedin.com/pub/itzhak-sella/3/b68/60a)
Tong Jinquan - Refer to Forbes (Link: http://www.forbes.com/profile/tong-jinquan/)

2. Financial Highlights

IPO price of S$0.88, represents 12.8% premium over NAV. The actual NAV is S$0.78. Thus by subscribing at IPO price you are effectively paying 12.8% premium.

From Company's Prospectus

Annualized 7.6% yield based on projection. Based on the IPO projection, the annualized yield is 7.6% for FY14.

3. Investment Highlights

Favourable dynamics of Germany’s real estate market. According to the Independent Market Research Consultant, the German property market is seeing increased demand as a global safe haven with growing participation from nondomestic investors attracted by the stability, liquidity and the steady growth potential of the German real estate market as well as the return of some German institutional and private investors and lenders choosing to focus on their own country rather than riskier foreign
markets.

In addition, the broad German office market is expected to respond favourably to the improving economic backdrop with stronger business sentiment boosting both take-up and investment volumes. According to the Independent Market Research Consultant, Germany is currently in a position in the rental cycle where landlords are expected to benefit from an increase in the growth of rental rates.

From Company's Prospectus

100% occupancy with Free hold status. The IPO portfolio is currently 100% occupied and the free hold status of the property represent one of the biggest highlight.

Strong tenants anchored by a wholly-owned subsidiary of Deutsche Telekom with long-term leases. Deutsche Telekom Properties via GMG is one their biggest tenant.  Deutsche Telekom, as the holding company of GMG, has entered into a profit and loss transfer agreement with GMG2, providing IREIT an avenue for a claim against Deutsche Telekom, should the assets of GMG be insufficient to cover the claims of IREIT. This ensure low credit risk for the REIT.

In addition, Concor Park is a multi-tenanted property with large, international and reputable corporate
tenants including Allianz, ST Microelectronics and Ebase, and has a WALE of 5.9 years.

4. Investment Risks

Chinese + Israeli -- Marriage from Heaven OR Disaster in the making???? I fear misalignment of interest here. On one hand, you have an Israeli sponsor. On the other, you have a majority shareholder being Chinese. I question the communication between the 2 and who will be the actual one making the strategic plan for IREIT.

As a minority shareholders, we are always at the mercy of the boardroom fight, that is simply out of our control. Thus, this potential strategy misalignment is one of my biggest worry.

Rental escalation based on CPI increase???? Based on the IPO projection, there will be a rental escalation triggered by CPI changes. (see projected table below) I am personally pretty susceptible on this. I am no economist expect back I am not so sure if the CPI increment is enough to achieve the stipulated trigger. Currently the base CPI is projected at 1.2%.

Weak market sentiment - Gaza+Ebola+Iraq & many more. Market has been trading poorly recently and there is a lot of geo-political risks that exist around us. In addition, there is still this Ebola disease which may significantly shift the overall market sentiment.

5. Conclusion

As much as I see value in the European property sector, I will stay caution on the IPO. I will not go ALL-IN on this one and might just buy some at IPO level and see how it perform before I add-on my position.

Viva Industrial Trust (VIT)

From Company's Prospectus

1. Business Description

Stapled group comprising of VI-REIT and VI-BT. VIT is a stapled group comprising VI-Reit and VI-BT.

VI-Reit : Singapore based REIT established with the principal investment strategy of investing in portfolio of income producing real estate which is used predominantly for business park and other industrial purposes in Singapore and elsewhere in the APAC region.

VI-BT : At the listing date, VI-BT, a Singapore based business trust, will be dormant. It will, however, become active on some triggering events.

From Company's Prospectus

HLG & KSH are Sponsors of VIT. Ho Lee Group Pte Ltd (HLG) and Kim Seng Holdings Pte Limited (KSH) are the Sponsors of VIT.

UE BizHub East

Brand new property comprising of Business Park component & Hotel component. Located in the Changi Business Park, UE BizHub East is a brand new integrated mixed-use business park development comprising:

Business Park Component – 2 business park buildings with retail space

Hotel Component – A business hotel managed by Park Avenue Hotels & Suites under the “Park Avenue” brand, which features a gym, swimming pool and convention centre with a theatre seating for up to 600 guests.

Rental agreement for UE Bizhub East. UE Bizhub East is under a rental agreement whereby:

Business Park component - VIT will receive S$23.35m per annum at Listing Date, with a step-up by 5% in each of the 3^rd and 5^th year of the term. (30Apr13 – 64.2% occupancy)

Hotel component (retail) - VIT will receive S$0.65m per annum at Listing Date, with a step-up by 5% in each of the 3^rd and 5^th year of the term. (30Apr13 – 100% occupancy)

Hotel component (exclude retail) – Leased to UED for a fixed rental income of S$8.55m per annum renewable at S$9.66m from the 6^th to 10^th of the Hotel Lease.

Mauser Singapore

Ramp-up logistics facility. Located near Tuas Checkpoint and Jurong Port, Mauser Singapore is a ramp-up logistics facility that provides operational and cost advantages in attracting tenants compared to conventional “cargo-lift” logistics facilities.

Mauser Singapore is under the Master Lease at S$1.8m per annum with a 5% rental escalation in the 3^rd and 5^th year built into its lease term.

Technopark@Chai Chee

Business Park located in a mature housing estate. Technopark@Chai Chee is well-maintained and offers attractive building specifications such as large floor plates which offers flexible layout and allows optimal spatial planning and easy configuration of workflow operations by tenants. The property also offers F&B establishments and other lifestyle amenities such as tennis courts and a gymnasium and is well served by amenities located in the mature housing estates in the vicinity.

Rental support agreement for Technopark@Chai Chee. The rental support agreement (RSA) states that if the gross rental income of the property is less than the target rental income of S$2.15m per month, VIT may within the period of 2 years claim the difference in each month. The aggregate liability/claim shall not exceed S$2.3m. The rental for July 13 was S$2.0m and actual occupancy rent is 60.7%. With the RSA, the calculated occupancy is at an average of 87.5%. (Suntec – 85%, JLL – 90%)

Visible acquisition pipeline through Right of First Refusal (ROFR) Properties. VIT has a visible acquisition pipeline through the listed ROFR Properties (see table beside).

From Company's Prospectus

2. Financial Highlights

Pro Forma Balance Sheet

Projected Income Statement

Projected Yield

Peer Comparison

3. Investment Highlights

Strategically located in business parks and established industrial clusters in Singapore with close proximity to MRT stations & major transportation networks. VIT’s properties are strategically located in key business parks and industrial clusters in Singapore with easy access to expressways and MRT stations. The properties are therefore supported by excellent infrastructure and transportation networks that enhance their attractiveness to existing and potential tenants.

From Company's Prospectus

Long weighted average underlying land lease and relatively new properties. The weighted unexpired lease term for underlying land for the portfolio is approximately 45 years. Both Mauser Singapore and UE BizHub East are new properties, TOP in year 2012. As such, this will result in minimum maintenance capex for these 2 properties.

Potential upside given its low tenancy rate at Technopark@Chai Chee. The current tenancy rate at Technopark@Chai Chee stands at a low 60.7%, thus there is a upside potential for them to manage up the tenancy rate.

4. Investment Risk

TOO MUCH FINANCIAL ENGINEERING! Too much financial engineering is involved and the yield is optically higher due to the rental support mechanism.

5. Conclusion

To be honest, I really don't like VIT at its IPO price of S$0.78 as I think that (1) its valuation is fair to expensive & (2) suspected asset quality given low tenancy rate, artificially supported by rental support mechanism.