Viva Industrial Trust - Resilient Amidst The Turbulence
- We expect Viva Industrial Trust to continue performing solidly in 2017 on the back of its favourable business park exposure (59% of assets) and master lease rent guarantees.
- AEIs at Viva Business Park (VBP) are progressing well, with full contributions gradually kicking in this year.
- The 6 Chin Bee Avenue (CBA) acquisition has been completed and will contribute positively from 1Q17 onwards.
- The stock offers a FY17F yield of 9.5%, the highest among the SREIT stocks in our coverage.
- Maintain BUY, with a TP of SGD0.85 (11% upside).
VBP is shaping up nicely.
- Asset enhancement initiatives (AEIs) at Viva Business Park (VBP), one of Viva Industrial Trust’s key assets, are progressing well. 94.9% of “white space” is already committed.
- Phases 1 and 2 of the redevelopments have obtained temporary occupancy permits (TOPs), while Phase 3 is expected to receive its TOP in February.
- Our site visit to VBP confirms that most of the retail tenants have moved in, with a visible increase in shopper traffic. We expect the spillover effect of the vibrant retail space to translate to higher occupancy and rental rates for the business park space as well.
- Overall, we expect an additional ~SGD8m in revenue from VBP from the completion of AEI works.
CBA acquisition kicks in in 1Q.
- Viva Industrial Trust completed its acquisition of the newly-completed ramped-up logistics facility at 6 Chin Bee Avenue (CBA) on 16 Jan. The property comes with a 7+3 year triple-net master lease, at SGD7.44m pa (1.5% rent escalation pa from the third year), which implies an acquisition net property income (NPI) yield of 8%.
- The acquisition adds stability to its portfolio and offers good earnings visibility amidst a challenging industrial market.
Not overly concerned by non-renewal of McDermott lease.
- McDermott, which currently occupies 31% of Jackson Square’s (JS) GFA, will not be renewing its lease in April. This would not impact the Trust’s earnings as the property is under a rent-guarantee arrangement until Nov 2019.
- Foxconn has already taken up 26% of the vacated space, at the same rental rate. Management is currently in discussions to fill up the remaining space.
Maintain BUY with an unchanged TP of SGD0.85.
- Our TP is based on a 5- year DDM model (CoE: 8.5%, TG: 0%).
- We have marginally adjusted our 2017- 2018 DPU estimates by -1 to -2% to factor in the effect of placements and acquisitions.
- The stock currently offers an attractive forward yield of 9.5%, ie one of the highest among SREITs that we cover.