Ann: Distrib Upgrade & Acquisition 69 Rivergate Pl Murairre, page-4

Hi Stlamc, JID,

Well I am going to be the party pooper again

Not long after TIX's announcment came out, Trinity TCQ released an announcement regarding their sale of the property. TCQ is very happy with the deal, and why wouldn't they be:

The sale price for the property is $27 million, which is a premium of 11.6% to the book value as at 30 June 2014 of $24.2 million.

So TIX paid $27 million, plus costs, so all up they paid around $28.5 million. TIX suspiciously made no mention of an independent valuation for the property. Is that a bargain? Well let's look at NTA values for this property. Straight from today's TCQ AGM presentation (they use book values):

2013 June: 25.5m
2014 June: 24.2m

So the property has decreased in value over the last year, yet TIX paid 11.6% above book value, plus costs. To me that seems to be an excessive premium to pay. TCQ also list the cap. rate as 7.5% so I am not sure how TIX get 8%; it should be less than 7.5% considering they paid above NTA for it, no??

The purchase is predominantly being funded by dept (maybe 5%?), so while it is earnings accretive at the moment, net yield will be eaten away if interest rates outstrip CPI increases. I assume our NTA has fallen slightly as a result of this purchase.

I hold a lot of A-REITs (that might explain my great interest in their acquisitions and sales) and many of them appear to be desperate to purchase new properties despite ever lower yields. Gone are the good old days (2008-13) of bargain properties that yield 10%+. I'd prefer not to see TIX grow too fast by making low yield acquisitions above NTA that may come back to bite them when the cycle turns. As you guys probably already now by now, I like my companies to be "tight as*es" when it comes to acquisitions; that must be because of my 1/4 Scotch blood I guess

Yet in the end TIX keep pulling rabbits out of the hat. Who was expecting a distribution upgrade, and a 7.5% increase at that!? And an NTA increase last month. While these guys continue to deliver the goods I'm going to stick with them, but I hope any future acquisitions are on better terms than recent ones.

Cheers.