Viva Industrial Trust - RHB Invest 2017-04-25: Minimal Impact From Jackson International Liquidation Notice

VIVA INDUSTRIAL TRUST T8B.SI

Viva Industrial Trust - Minimal Impact From Jackson international Liquidation Notice

Viva Industrial Trust (VIT) announced this morning that it has received a liquidation notice from Jackson International Private Limited (JIPL).
JIPL is the vendor of Jackson Square (JS) building that VIT acquired in Nov 2014. During acquisition JIPL has provided a gross rental income guarantee of SGD58m (or) SGD11.6m p.a for the property over a period of five years (till Nov 2019). The rental guarantee will provide necessary top-up should the collected rents falls below the guaranteed amount.
JIPL is also the integrated facilities manager for JS and is responsible for operating, maintaining, managing and marketing JS during rental support period. In return JIPL has been paid a property upkeep fee and management fee of SGD2.0m p.a and SGD 96,000 p.a respectively.

Overall, we expect a slight negative impact (~1-2% decline in DPU estimates) for FY18/19 from the liquidation of JIPL.
VIT received a rental top-up of SGD1.56m for FY2016 and in our model we have factored in a rental support of SGD1.0m/0.7m/0.4m for FY17/18/19F respectively. JS has an occupancy of 91% as at end 4Q16 and we expect it to dip to 70-80% levels in the near-term with McDermott (~31% of NLA) lease expiries in Apr 2017. Also three of the tenants of JS are subsidiaries of JIPL and occupies ~24% of NLA in JS which we believe is at risk too.
The impact is however mitigated due to following:
1. VIT has a bankers guarantee of SGD3.87m from JIPL which can be used to top- up some of the shortfall; and
2. the buildings prime-location (walking distance to Braddell MRT) should continue to attract tenants.
We maintain our BUY recommendation with unchanged TP of SGD0.85 based on our DDM model (CoE : 8.7%, TG:0%). We will issue a detailed note post 1Q17 results announcement on 28th May.

Vijay Natarajan RHB Invest | http://www.rhbinvest.com.sg/ 2017-04-25

RHB Invest SGX Stock Analyst Report BUY Maintain BUY 0.850 Same 0.850