VIT – Lim & Tan

We are “Neutral” on VIT despite its 8.8% dividend yield for 2014 and 9% for 2015 due to the following reasons:

• the average occupancy rate for its key properties (UE Bizhub East) and Technopark @ Chai Chee is only in the 60-70% range, hence requiring income support from United Engineers (for 5 years) and Capitaland (for 2 years) to meet the projected yields;
  
• excluding the income support, the actual yield would be 6+%, which is about in line with that of more established industrial REITs such as AREIT (6+%) and Mapletree Industrial Trust (7%) and inferior to that of Cache Logistics (7+%), Cambridge Industrial (7+%) and Soilbuild Biz Space REIT (8+%);
  
• VIT’s gearing of about 40% is amongst the highest in the sector, making it difficult (or potentially more fund raising ahead) for future acquisitions;
  
• VIT’s high gearing would also make it vulnerable to the potentially higher interest rate environment amidst fears of “tapering” of bond purchases by the US federal reserve next year;
  
• compared to the existing industrial REITs in the market, VIT’s portfolio of only 3 properties has the highest concentration risk;
  
• while VIT has right of first refusal for 6 properties in Singapore, Korea and China, its high yield of 9% makes accretive acquisitions difficult to achieve; and
  
• Soilbuild Biz Space REIT has not done well post listing (despite offering an attractive yield of 8+%), having tanked from its IPO price of 78 cents to a low of 69 cents at the end of Aug’13 before rebounding to 75 cents currently.