Viva Industrial Trust - OCBC Investment 2016-07-07: Initiate with BUY

Viva Industrial Trust - OCBC Resesarch 2016-07-07: Initiate with BUY VIVA INDUSTRIAL TRUST T8B.SI 

Viva Industrial Trust: Initiate with BUY

  • 58.1% of portfolio in business parks
  • S$6.9m in additional NPI by FY18
  • FY16F DPU yield of 9.8%

Business Park-focused REIT

  • Viva Industrial Trust (VIT) is a Singapore- focused REIT which primarily invests in business parks and industrial real estate assets. 
  • Its current portfolio comprises eight industrial properties with a NLA of 3.0m sq ft. 
  • The combined market valuation of VIT’s portfolio is S$1.2b, including its latest acquisition of 30 Pioneer Road in April, with the majority coming from business parks (58.1%). 
  • While the industrial space continues to face headwinds, we note that rents for business parks have been resilient (-2.5% YoY and -1.0% QoQ in 1Q16). This is relative to other segments of industrial space (-5.1% YoY for all industrial, -7.0% YoY for multi-user factories, -3.0% YoY each for single-user factories and warehouses).

Large potential incremental NPI resulting from VBP AEI

  • Last year, VIT announced a S$22m asset enhancement initiative (AEI) for Viva Business Park (VBP). The AEI consisted of alteration and additions work to convert the ground-floor carpark and unutilised areas into retail and commercial space at three of the six blocks, as well as façade and amenity enhancements. 
  • We expect the incremental NPI resulting from the VBP AEI to reach S$3.2m in FY16, S$6.5m in FY17, and S$6.9m in FY18. This compares against VIT’s own projection of additional annual NPI of S$9.8m following the AEI. 
  • Furthermore, after the removal of a hoarding which is inconveniencing access at UE Bizhub EAST (UEBH) by end-2016 and the expected completion of the downtown line by end-2017, we expect strong positive rental reversions for UEBH (Business Park) contributing to a ~5% to ~8% annual increase in UEBH’s gross rent from FY17 to FY19.

Initiate coverage on VIT with BUY

  • Looking ahead, we project VIT’s distributable income to increase by 27.0% in FY16 and 6.2% in FY17. DPU is expected to decrease 1.2% to 6.916 S-cents in FY16, based on the enlarged share base following the private placement and preferential offering last November. 
  • For FY17, we forecast DPU to increase 6.9% to 7.392 S-cents. 
  • Based on yesterday’s closing price of S$0.705, VIT is currently trading at a forward FY16F DPU yield of 9.8% and a FY17F yield of 10.5% according to our forecasts. 
  • We value VIT using the dividend discount model (DDM) and derive a fair value estimate of S$0.75 (cost of equity: 9.0%; terminal growth rate: 0%). The stock is trading at a forward P/NAV ratio of 0.89x. 
  • We initiate coverage on VIT with a BUY rating and a fair value of S$0.75.

Deborah Ong OCBC Securities | http://www.ocbcresearch.com/ 2016-07-07
OCBC Securities SGX Stock Analyst Report BUY Initiate BUY 0.75 Same 0.75