Viva Industrial Trust (VIT SP) - Maybank Kim Eng 2017-07-27: Strong Quarter; VBP Looking Up Post-AEI Gains

Viva Industrial Trust (VIT SP) - Maybank Kim Eng 2017-07-27: Strong Quarter; VBP Looking Up Post-AEI Gains VIVA INDUSTRIAL TRUST T8B.SI

Viva Industrial Trust (VIT SP) - Strong Quarter; VBP Looking Up Post-AEI Gains


Strong operations; Estimations raised, Target Price +5% to SGD1.00 

  • Viva reported strong operating results for 2Q17, led by contributions from recent acquisitions (at 6 Chin Bee Ave and 30 Pioneer Road), successful backfilling at Jackson Square (JS), and +5% rental reversions at Viva Business Park (VBP) on an expanded retail footprint, following the completion of its final AEI phase. 
  • Looking ahead, we see further leasing momentum at its VBP asset, and have raised F17/18 forecasts of NPI by 2% and DPU by 3%. 
  • With 7.5% dividend yield support to our new DDM-based TP of SGD1.00, we reiterate BUY.


2Q17 results were slightly ahead of our est.’s 

  • Viva delivered strong 2Q17 results, with double-digit % YoY increases in revenue, NPI and distributable income. DPU was SG1.86cts (+6.3% YoY) bringing YTD to 56% of our FY17 estimate. 
  • The performance was attributed to contribution from 6 Chin Bee Ave (acquired in Jan 2017), rental uplifts at 30 Pioneer Road, and ramping up of retail space at VBP with the completion of its final phase AEI works in May 2017.


Strong execution on backfilling at Jackson Square 

  • JS occupancies were surprisingly resilient at 89%, as the McDermott and other vacant space were successful backfilled by tenants in industrial training/education and telecommunications sectors, with PSBA and MyRepublic occupying 15% and 5%, respectively. 
  • Jackson Int’l Pte Ltd (JPIL) subsidiaries have provided additional SGD1.7m in security deposits (equivalent to 12 months rental) to maintain their leases (of 24% of total space) at JS. Management is not expecting a significant increase in property expenses from the taking over of facilities management duties.


DPU forecasts up by 3%, possible lift from tax ruling 

  • We revised forecasts to factor in higher occupancies at JS in FY18E and stronger rental assumptions at VBP, post-AEI. 
  • Viva is looking towards a favourable outcome of an advance tax ruling from the IRAS (following an amendment to the Income Tax Act in 1Q17) on the tax transparency treatment on rental support receivable amounting to SGD1.7m, which could further lift DPUs. 
  • For now, the 7.5% div yield continues to support our new DDM-based TP of SGD1.00. Reiterate BUY.


Swing Factors


Upside

  • Earlier-than-expected pick-up in leasing demand driving improvement in occupancy.
  • Better-than-anticipated rental reversion trend.
  • Accretive acquisitions.

Downside

  • Prolonged slowdown in economic activity could reduce demand for industrial space, resulting in lower occupancy and rental rates.
  • Termination of long-term leases contributing to weaker portfolio tenant retention rate.
  • Expiry of rental support mechanisms without corresponding rental reversion uplift from Nov 2018.
  • Sharper-than-expected rise in interest rates could increase cost of debt and negatively impact earnings, with higher cost of capital lowering valuations.




Chua Su Tye Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2017-07-27
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 1.00 Up 0.950



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