Viva Industrial Trust - OCBC Investment 2017-05-23: Settlement Agreement With JIPL

Viva Industrial Trust - OCBC Investment 2017-05-23: Settlement Agreement With JIPL VIVA INDUSTRIAL TRUST T8B.SI

Viva Industrial Trust - Settlement Agreement With JIPL

  • S$1.0m cash payment.
  • S$1.7m add. security deposits.
  • FV increases to S$0.83.



Key terms of settlement with JIPL 

  • Viva Industrial Trust (VIT) announced that a settlement agreement has been reached with Jackson International Private Limited (JIPL) and Mr. Tan Phong Guan, JIPL’s director and shareholder. 
  • Key terms of the agreement include a S$1.0m cash payment (“compromise amount”) to the REIT Trustee on top of the Rental Support Bank Guarantee of S$3.9m, and additional security deposits of S$1.7m in relation to the existing leases at Jackson Square (JS) taken up by JIPL subsidiaries. 
  • Recall that three JS tenants are subsidiaries of JIPL; in Mar 2017, they contributed 19% of JS’s gross rental collection and occupied 24% of the space. The settlement agreement is a full and final settlement of all existing claims arising from the termination of the rental support agreement.


Changing our occupancy assumptions for Jackson Square 

  • Given the additional security deposits of S$1.7m, we estimate that VIT now has around 12 months’ worth of security deposits for the leases taken up JIPL’s subsidiaries and we change our occupancy assumptions for JS accordingly. 
  • Our previous assumptions for JS occupancy were as follows: ~55% occupancy from 2Q17 to 4Q17, ~65% for FY18 and ~75% for FY19. Our assumptions are now 74% to 84% occupancy from 2Q17 to 4Q17, ~78% for FY18 and ~85% for FY19. Note that total occupancy at JS as at end-Mar, which included McDermott, was 91%.


Re-iterate BUY; FY17F yield of 9.6% 

  • After the adjustments, our fair value increases from S$0.825 to S$0.83. 
  • As mentioned in our previous reports, we expect the termination of the rental support agreement at JS to have little to no impact on FY17 DPU. 
  • After taking into account the settlement agreement and our new occupancy assumptions, we expect a shortfall of around S$0.7m in what would have been the JIPL rental support due in FY18 as well as a S$1.3m shortfall in FY19. 
  • Nonetheless, we look forward to improvements in underlying rental income at VBP and UEBH in the coming years and find current price level attractive. 
  • VIT currently enjoys an FY17F yield of 9.6%. Reiterate BUY with a fair value of S$0.83.




Deborah Ong OCBC Investment | http://www.ocbcresearch.com/ 2017-05-23
OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 0.830 Up 0.825



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