Heartland Boy has always felt that time spent with Management would improve his investment outcome. Somehow, seeing Management address questions in person are not the same as reading the answers from the various analyst reports. However, ever since he was posted to Jakarta, he has found it increasingly difficult to gain access to management. For instance, most of the AGMs are held on weekdays. Therefore, he gladly paid the $10 registration fee to attend the 2017 Singapore REITs Symposium held on 27 May at Suntec Convention & Exhibition Centre. The REITs Symposium is organized by REIT Association of Singapore (‘REITAS’). An overwhelming 26 REITs listed on the Singapore Stock Exchange set up booths this year. At the 2017 Singapore REITs Symposium, Heartland Boy went from booth to booth to gain a better understanding of the various participating REITs and Business Trusts. He also took this opportunity to speak to the CEOs of Viva Industrial Trust, BHG Retail REIT, RHT as well as the investor relations staff from Soilbuild REIT. Here is his review of the 2017 Singapore REITs Symposium and the key insights from the various CEOs on their respective businesses.
1. Q&A With Chan Iz-Lynn, CEO of BHG Retail REIT
On strategic investors’ waiver of their DPU (‘Distribution Per Unit’) entitlement
CEO: “At the recent 1Q2017 results announcement, the waiver by strategic investors on their DPU entitlement had reduced from 30% in 2016 to 27.5% in 2017. Despite that, we managed to increase our DPU in 1Q2017 as compared to 1Q2016. We have put in place various strategies for our existing assets to increase DPU:
- Positive rental reversions expected from our multi-tenanted malls, especially since up to 27.7% of our portfolio by gross rental income are up for renewal in 2017.
- The Asset Enhancement Initiative (‘AEI’) at our mall in Chengdu has outperformed our expectations. Contribution to bottom line as a result of the AEI will be felt progressively till the end of the year.
- At our mall in Beijing, we are looking to shrink the space afforded to some tenants. We hope to be able to bring in more tenants and more rental revenue after optimising the space allocation.
Therefore, these various strategies provide us the confidence that we will be able to maintain our DPU once the entitlement period is over by 2020.”
On the Sponsor’s large pipeline
CEO: “There are 14 projects from the Sponsor that we have a Right Of First Refusal (‘ROFR’) on. However, most of these assets are either under development or too young to have reached a stabilised state. Therefore, they are not yield-accretive at this moment and we do not want to acquire irresponsibly. Therefore, our team is working hard to look for third-party retail malls around China as well as the rest of the world. With a global investment mandate, we are confident of acquiring retail malls that are immediately yield-accretive.”
2. Q&A With Wilson Ang, CEO of Viva Industrial Trust
On the final settlement reached with the vendor of Jackson Square
CEO: “We have received an additional $1.7mil security deposit from Jackson International Private Limited’s subsidiaries. These subsidiaries are in the business of self-storage and childcare and their leases expire in either 2019 or 2020. Collectively, the subsidiaries take up 24% of the Net Leasable Area at Jackson Square and contributed 19% of gross income in 1Q2017.”
Heartland Boy did a quick calculation back at home. Given that $1.56 mil of rental support was utilized in FY2016 for Jackson Square, this implies that total actual gross rental income received in FY16 was $$10.04 mil. Jackson Square’s subsidiaries would have contributed $1.9 mil. Therefore, the additional $1.73 mil of security deposits could potentially last another 10 months in the event of default. Heartland Boy thinks that this is a great outcome for the unitholders of VIT.
HLB: “Please provide an estimate of the operating costs of Jackson Square. Do you think it will exceed $2 million per annum?”
CEO: “We have an internal team with the relevant property management expertise. We will be calling for a tender soon and we do not foresee it to exceed $2 million per annum.”
On Viva Business Park (‘VBP’)
CEO: “Phase 3 has already achieved TOP. The pre-committed tenants are commencing fitting out at this moment. There is a good tenant mix such as a lifestyle electronics retailer as well as a rock-climbing service provider.”
Heartland Boy thinks that it is likely these anchor tenants may have negotiated for some “rent-free” periods to fit out the leased space. Therefore, these pre-committed tenants should only contribute meaningfully to DPU from 3Q2017 onwards.
HLB: “I think unitholders are always concerned about the short land lease of VBP. May I understand your team’s strategy to increase the land tenure?”
CEO: “VBP is currently under the jurisdiction of HDB. Next year, industrial projects will be transferred from HDB to JTC. JTC has an early renewal policy for buildings with less than 15 years remaining in their land leases. Therefore, after the transition, we will commence renewal talks with JTC for VBP. We are optimistic on our chances as (i) VBP was rezoned from high-tech industrial to business park and (ii) we have displayed our commitment by spending more than $80 million in AEI to utilize the white space.
On future acquisitions
CEO: “Owing to the positive demand-supply outlook for business parks, the valuation for this asset class has compressed. Contrast this to the high yield that VIT is currently trading at, it will be difficult to purchase yield-accretive business parks. Therefore, we are more likely to purchase warehouses or factories. In particular, we like cold chain logistics of the food industry as they tend to be more stable and resilient.”
3. Q&A with Gurpreet Singh Dhillon, CEO of Religare Health Trust
On India’s demonetization policy
CEO: “As an estimate, about 30% of our revenue is variable. In addition, about 75% of our customers pay by cash. Therefore, India’s demonetization policy has affected our performances for the past 2 quarters as people delayed discretionary treatments in order to preserve cash. However, we do witness greater monetary stability now and expect our hospitals to perform better from henceforth.”
On the change in hedging policy from 100% to 50%
CEO: “We realized that we have overpaid in premiums for hedging in the past. Therefore, we have reduced our hedging policy from 100% to 50%. We think that this is a right balance to take between stability of DPU in SGD for unitholders and possible upside from the strengthening of the Indian Rupee.”
On reducing DPU payout ratio rather than increasing debt
CEO: “It boils down to an efficient utilization of capital. We do not think that it is sustainable to continue to pay 100% of our cashflow to unitholders. Therefore, we have chosen to fund our working capital requirements from internal cashflow rather than external debt despite our low gearing ratio.”
4. Q&A with Investors Relations Team from Soilbuild REIT
On the leasing conditions at 72 Loyang Way
Soilbuild: “The last of the rental deposits collected owing to the default of Technics Offshore Engineering will expire this quarter. We have obtained waiver from JTC to lease 30% of the space to tenants from the non-oil & gas sector. So far, we have managed to lease out 9.9% of the space at 72 Loyang Way. We continue to receive enquiries from tenants in the aviation and logistics industry. As for the other 70% of the space reserved for the oil & gas industry, JTC requested that we find a single user who will be able to utilize the water features in front of the property. Given the subdued oil and gas macro-environment, we foresee challenges in leasing out this remaining space.”
REIT Investing In Singapore
Besides the informative booths by the various participating REITs, participants at the 2017 Singapore REITs Symposium could also learn more about the complementary services offered by ShareInvestor and InvestingNote. In addition, Heartland Boy also attended the panel discussion in the morning whereby Philip Capital explained the strong diversification attributes that a REIT ETF can offer. A REIT ETF is an excellent product for those who may not have the time or expertise to sieve out the best REITs for 2017 but yet would still like to participate in REIT investing. Afterall, Singapore REITs are still a desirable cherished asset class to have in a balanced portfolio. It is able to provide high and stable dividend yield ranging from 6% to 7% with moderate risks. For those who wish to better understand the REIT industry, Heartland Boy has written a glossary of REIT jargon typically used in the Singapore REITs industry.
The most pressing question i have is, will there ever be a singapore reits etf which does not suffer dividend withholding tax? Any mention of this at the symposium?
I was only there is the morning session. This was not discussed. Thanks.
Wow interesting. I miss this. How do we get invited to this event ? Hope to join the next.
I was not invited to the event. I merely signed up as a member of the public.
Hello Heartland boy, Thanks for the update. This was very useful for investors like me who are out of town and could not attend this event. Please do provide write-up on other REITS as well.
Thanks for your compliments. Unfortunately, I only interacted with these 4 REITs. I did not have sufficient time to speak to the rest of the REITs.