Viva Industrial Trust - RHB Invest 2016-08-18: An Unpolished Gem In The Industrial Space

VIVA INDUSTRIAL TRUST T8B.SI

Viva Industrial Trust - An Unpolished Gem In The Industrial Space

Viva Industrial Trust (Viva) is a business park-focused S-REIT with a 100% Singapore-based portfolio.
Since its listing, it has grown steadily through acquisitions/AEIs and currently has eight properties with an asset value of SGD1.1bn.
We expect DPU to grow moving forward, with additional contributions kicking in from latest acquisitions and AEI completions.

Key risk is its ability to maintain rental income at UE Biz Hub post-expiry of rental support in 4Q18.
Viva is trading at a consensus FY16F yield of 9.3% vs industrial REITs’ 7% average. We do not have a rating on the stock.

Among the industrial S-REITs, Viva has the highest exposure to the favourable business park segment (demand-supply dynamics), which makes up 58%/59% of its asset value and gross revenue.
Since its Nov 2013 listing, it has also grown through yield accretive acquisitions and now has eight properties vs just three previously.

Viva Business Park (VBP) is currently undergoing asset enhancement initiative (AEI) works to transform from a high-tech industrial space to a business park with retail, food and beverage (F&B) and other commercial uses.
Post AEIs, management expects an incremental net property income (NPI) contribution of SGD9.8m pa, which translates to a 12% ROI. Phases 1&2 of the AEI works have been completed with close to 90% occupancy achieved. Phase 3 is expected to be completed by 4Q16.
With a steady stream of incremental NPI contributions kicking in from 3Q16, we expect distributable income to grow correspondingly.

One of Viva’s key strengths, in our view, is its strong tenant profile with nearly two-thirds comprising blue-chip MNCs and government-linked companies. 44% of overall tenants are in IT, e-business or data centre operations, which we believe are areas with growth potential.
Viva has very minimal (< 1%) exposure to the troubled oil & gas sector.

With proactive refinancing of SGD270m loans expiring in the next two years, Viva has no refinancing requirements until 2018.
Its weighted average debt maturity stands at 3.7 years with total debt cost of 3.95%.
Standard & Poor’s has assigned a corporate credit rating of BB.

These include Viva’s ability to increase rental rates post the expiry of rental support at UEBH and Jackson Square in Nov 2018-2019 respectively, and relatively high gearing levels of 40% (as at 2Q16) providing limited debt headroom for potential acquisitions and operation of good-quality overseas properties, which is yet to be proven.

Viva is currently trading at FY16 Bloomberg consensus yield of 9.3%, a good 230bps and 300bps above industrial REITs’ average of 7% and S-REIT average of 6.3%, respectively.
The high yield gap over peers and sector average offers scope for yield compression amidst increasing global appetite for stable yield instruments.

Vijay Natarajan RHB Invest | http://www.rhbinvest.com.sg/ 2016-08-18

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