Viva Industrial Trust - RHB Invest 2017-04-25: Minimal Impact From Jackson International Liquidation Notice

Viva Industrial Trust - RHB Invest 2017-04-25: Minimal Impact From Jackson international Liquidation Notice VIVA INDUSTRIAL TRUST T8B.SI

Viva Industrial Trust - Minimal Impact From Jackson international Liquidation Notice

VIT receives liquidation notice from Jackson International 

  • Viva Industrial Trust (VIT) announced this morning that it has received a liquidation notice from Jackson International Private Limited (JIPL)
  • JIPL is the vendor of Jackson Square (JS) building that VIT acquired in Nov 2014. During acquisition JIPL has provided a gross rental income guarantee of SGD58m (or) SGD11.6m p.a for the property over a period of five years (till Nov 2019). The rental guarantee will provide necessary top-up should the collected rents falls below the guaranteed amount. 
  • JIPL is also the integrated facilities manager for JS and is responsible for operating, maintaining, managing and marketing JS during rental support period. In return JIPL has been paid a property upkeep fee and management fee of SGD2.0m p.a and SGD 96,000 p.a respectively.

Our view: The liquidation move will have a direct impact on the rental guarantees. 

  • Overall, we expect a slight negative impact (~1-2% decline in DPU estimates) for FY18/19 from the liquidation of JIPL. 
  • VIT received a rental top-up of SGD1.56m for FY2016 and in our model we have factored in a rental support of SGD1.0m/0.7m/0.4m for FY17/18/19F respectively. JS has an occupancy of 91% as at end 4Q16 and we expect it to dip to 70-80% levels in the near-term with McDermott (~31% of NLA) lease expiries in Apr 2017. Also three of the tenants of JS are subsidiaries of JIPL and occupies ~24% of NLA in JS which we believe is at risk too.
  • The impact is however mitigated due to following: 
    1. VIT has a bankers guarantee of SGD3.87m from JIPL which can be used to top- up some of the shortfall; and 
    2. the buildings prime-location (walking distance to Braddell MRT) should continue to attract tenants.
  • We maintain our BUY recommendation with unchanged TP of SGD0.85 based on our DDM model (CoE : 8.7%, TG:0%). We will issue a detailed note post 1Q17 results announcement on 28th May.

Vijay Natarajan RHB Invest | http://www.rhbinvest.com.sg/ 2017-04-25
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 0.850 Same 0.850