Viva Industrial Trust - OCBC Investment 2017-01-27: High growth visibility in FY17 – reiterate BUY

VIVA INDUSTRIAL TRUST T8B.SI

Viva Industrial Trust - High growth visibility in FY17 – reiterate BUY

Viva Industrial Trust’s (VIT) results were within expectations.
FY16 DPU dropped 0.6% to 6.958 S cents, or 95% of our full-year forecast, as dilution from last year’s placement in 4Q16 had yet to be accompanied by income contribution from the Chin Bee acquisition, which was only completed in Jan 2017.
FY16 gross revenue and NPI increased 28.6% to S$95.1m and 34.7% to S$68.5m respectively. Both came up to 102% of our forecast.

In 2017, beside new contributions from Chin Bee property, we anticipate strong growth prospects at Viva Business Park (VBP).
While VIT has achieved 94.9% committed occupancy for the VBP “white space” as at 31 Dec 2016, we note that only 58% of total “white space” contributed to 4Q16 income with the rest of the occupants yet to start their leases. We expect all remaining ~37% of space to start contributing to revenue in stages by end 2017 – VBP’s revenue and NPI is forecasted to increase 23% and 30% YoY respectively in FY17.
In 2018, we are optimistic on the UE Bizhub (UEBH) rents with the Downtown line connection due to open at Expo and forecast a ~10% rental reversions for lease renewals.

In terms of risks, we note that a large tenant at Jackson Square (JS), McDermott (which currently contributes around 3.7% of VIT’s monthly rental income) will not be renewing its lease expiring in Apr 2017. JS is currently protected by a rental guarantee arrangement till Nov 2019. We currently assume that only ~3/4 of the vacated space will be leased out by Nov 2019.
While we view the non-renewal as a negative, we note that McDermott is one of VIT’s only O&G tenant and expect few repeats of this scenario. After adjusting our forecasts for VBP, UEBH, and JS, our fair value estimate increases from S$0.78 to S$0.80.
As of now, VIT is trading at 10.0% FY17 forward yield.
We reiterate our BUY rating on VIT.

Deborah Ong OCBC Investment | http://www.ocbcresearch.com/ 2017-01-27

OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 0.80 Up 0.780