Viva Industrial Trust - OCBC Investment 2016-10-24: INCREASED FV TO S$0.81

VIVA INDUSTRIAL TRUST T8B.SI

Viva Industrial Trust - INCREASED FV TO S$0.81

Gross revenue increased 31.9% YoY to S$24.3m mainly due to the additional rental contribution from three newly acquired assets as well as higher rental from Viva Business Park (VBP). As a result, distributable income grew 35.2% YoY to S$15.7m and DPU grew by a smaller 9.9% YoY to 1.810 S cents due to an enlarged unit base.
9M16 gross revenue came up to S$69.6m or 76% of our initial FY16 forecast; 9M16 DPU came up to 5.198 S cents, also making up 76% of our initial FY16 forecast.
With respect to asset enhancement initiative (AEI) works for VBP, blocks 750A and 750 have received TOP, while AEI works for block 750B are expected to be completed by 4Q16.

On the back of a jump in committed occupancy for VBP’s office space this past quarter, we have adjusted our projections to include a ~10ppt growth in office space occupancy over two years, as opposed to an overly conservative ~2ppt growth projected earlier. This is also anchored on our expectations of spillovers from the retail segment at VBP: we note that the variety of different dining options – many of which are Halal – as well as the availability of enrichment and sports- related facilities makes VBP much more attractive to potential office tenants than before.
Nonetheless, we expect rental rates for VBP’s office space to remain flat until occupancy is ramped up to at least 85%.
We have also adjusted our projections for rental rates at UE BizHub (UEBH), projecting an average ~15% rental reversion for expiring leases after the removal of hoarding and the completion of the Downtown Line.

VIT is currently trading at a blended FY16/17 forward yield of ~10% as of last Friday.
Aside from making the aforementioned adjustments, we have also lowered our expected payout ratio to < 100% so as to allow a greater buffer from the 45% gearing ratio limit.
As a result, our fair value increases from S$0.76 to S$0.81.
We upgrade VIT from a Hold to a BUY.

Deborah Ong OCBC Investment | http://www.ocbcresearch.com/ 2016-10-24

OCBC Investment SGX Stock Analyst Report BUY Upgrade HOLD 0.81 Up 0.760