Viva Industrial Trust - RHB Invest 2016-09-09: Pure Play Domestic REIT With Superior Yields

Viva Industrial Trust - RHB Invest 2016-09-09: Pure Play Domestic REIT With Superior Yields VIVA INDUSTRIAL TRUST T8B.SI

Viva Industrial Trust - Pure Play Domestic REIT With Superior Yields

  • We initiate Viva Industrial Trust (VIT) with a BUY recommendation and TP of SGD0.85 presenting a total return of 20%. 
  • Key upside drivers include: 
    1. Rental contributions from AEIs at Viva Business Park (VBP); 
    2. Income stream from its recent acquisitions; 
    3. Re-rating of UE Biz Hub (UEBH) post downtown line completion.
  • Key risk is its ability to maintain rental income at UEBH post expiry of rental support in 4Q18. 
  • VIT offers attractive FY17F yields of 9.7% vs. Industrial REITs average of 7.2%.

Initiate with a BUY, TP of SGD0.85. 

  • Viva Industrial Trust (VIT) is a business park focussed S-REIT with an 100% Singapore-based portfolio. 
  • Since listing in Nov 2013, VIT has grown steadily through acquisitions/AEIs and currently it has 8 properties with asset value of SGD1.1bn. 
  • Our TP is derived based on 5-year DDM model (Cost of Equity: 8.7%, Terminal growth: 0%). 
  • We forecast DPU to grow by 10%/2% in 2017/18 mainly due to contributions from AEIs at VBP. Our TP translates into FY17F dividend yield of 8.9% and P/B of 1.04x.

Favourable Business Park exposure. 

  • Among Industrial S-REITs, VIT offers the highest portfolio exposure to the favourable business park segment (demand-supply dynamics) which accounts for 58%/59% of its asset value and gross revenue. 
  • Its light industrial (21% of assets), logistics (7%) and hotel (14%) are under long-term master leases with rental guarantee and rental escalation clauses providing rental stability for unit holders.

Ramping up earnings contribution from VBP. 

  • VIT is currently undertaking SGD20m asset enhancement initiatives (AEI) at VBP which will add an additional 214,951 sqft GFA of white space. 
  • VIT has so far secured 21 tenants offering sports and fitness, F&B and family oriented amenities for the white space, bringing occupancy to > 90%. The recent rents signed are in the range of SGD 7-10psf. 
  • We expect an additional revenue of SGD11m p.a (~10% increase) post completion by 4Q16. 
  • We also expect spill over benefits to business park rents which are below SGD3 psf compared to nearby rents of ~SGD4 psf.

Strong tenant profile its forte. 

  • About 63% of tenant mix is comprised of bluechip MNC and GLCs. 
  • Information Technology, e-business or data centre are its biggest clientele by trade sector accounting for 44% of income. It has very minimal exposure to the troubled Oil & Gas sector.

Key risks 

  • Key risks includes VITs ability to achieve rental uplift post expiry of rental support at UEBH and Jackson Square in Nov 2018/19 respectively. High gearing levels of 40% provides very limited debt headroom and with limited yield accretive opportunities in Singapore, management’s ability to acquire and operate good quality overseas properties remains to be proved. 
  • For a complete analysis, this initiation report should be considered together with our previous report An Unpolished Gem In The Industrial Space

Vijay Natarajan RHB Invest | 2016-09-09
RHB Invest SGX Stock Analyst Report BUY Initiate BUY 0.85 Same 0.85