Viva Industrial Trust - Reiterate BUY; completion of Chin Bee acquisition
- Completion of Chin Bee acquisition.
- Fair value of S$0.78.
- Reiterate BUY rating.
Chin Bee property was acquired on 16th Jan
- Viva Industrial Trust (VIT) has completed the acquisition of newly completed ramp-up logistics development (Chin Bee Property) for S$87.3m, excluding the upfront land premium and stamp duty.
- The property is leased to Sharikat Logistics under a 7-year triple-net master lease at S$7.44m per annum, with rental escalations of 1.5% at the beginning of the third year.
- As a result of the acquisition, VIT’s portfolio has grown by 7.9% to S$1.28b. Concurrent with the acquisition, the share base has been enlarged by the issue of 31.1m consideration stapled securities, or 3.6% of existing securities prior to the placement.
- We have updated the parameters of our DDM model to reflect the date of the acquisition, which we had originally anticipated to be mid-Dec.
Growth drivers in 2017
- In 2017, we look forward to two catalysts for an improvement of fundamentals at UE BizHub – the removal of hoarding and the completion of the Downtown Line connection at Expo nearer the end of the year.
- For business park rents, Savills projects slight increases of about 3.0% to 5.0% YoY in 2017 given the dearth of upcoming supply.
- For 2018, given that business parks are sometimes seen as lower-cost substitutes for Grade B or below office supply, we are concerned with the upcoming injection of office supply outside the CDB in 2018 projected by Colliers International. While we note this as a risk and will continue to monitor the situation, we believe the underlying fundamentals of the asset will be buffered by the opening of the Downtown Line at Expo in late 2017.
Raised risk-free rate; reiterate BUY
- Our FY17 DPU drops from 7.5 S cents to 7.4 S cents due to the slightly-less-than-full year contribution from the Chin Bee property.
- We note that the larger share base should help improve trading liquidity. As of 30 Sept 2016, VIT’s all-in borrowing cost stood at 3.9% while 86.1% of its interest rate exposure was fixed.
- As we raise our risk-free rate from 2.4% to 2.7%, our fair value estimate is pared down to S$0.78.
- We reiterate our BUY rating on VIT.