Viva Industrial Trust - OCBC Investment 2017-07-27: Expect Positive Rental Reversions For FY18/19

Viva Industrial Trust - OCBC Investment 2017-07-27: Expect Positive Rental Reversions For FY18/19 VIVA INDUSTRIAL TRUST T8B.SI

Viva Industrial Trust - Expect Positive Rental Reversions For FY18/19

  • 2Q17 DPU up 6.3% YoY.
  • Cost of equity drops to 8.0%.
  • FV increases to S$0.895.

2Q17 results within expectations 

  • Viva Industrial Trust’s (VIT) solid set of 2Q17 results were within expectations. 
  • 2Q17 revenue jumped 18.0% YoY to S$27.6m or 24.6% of our full-year forecast, boosted by a S$2.3m increase in contributions from VBP as well as a S$1.9m contribution from the Chin Bee acquisition.
  • Similarly, 2Q17 NPI increased 17.5% YoY to S$20.2m. 2Q17 DPU increased 6.3% YoY to 1.861 S cents, or 24.1% of our full-year forecast.
  • 1H17 DPU made up 48.1% of our full-year forecast.

JS clocks a resilient 89% occupancy 

  • We are encouraged by the total committed occupancy of 89% at Jackson Square as at endJun, contributed by > 70K sq ft of new leases signed during the quarter. 
  • We also note that 7% rental reversions were achieved for VBP’s business park space in 2Q17 and we expect this pace of mid-single digit rental reversions to continue for the next few quarters. 
  • For UE Bizhub, we are optimistic that the completion of the Downtown line interchange at Expo MRT as well as the construction of underground walkway linked to the station will spur double-digit rental reversions. The projects are expected to complete in late Oct 2017.

Lower cost of equity to 8.0% 

  • We lower our cost of equity from 8.5% to 8.0%, following the successful completion of AEI at VBP and the positive rental reversions expected for upcoming lease expiries in FY18 and FY19. 
  • We have updated our occupancy assumptions for JS – do note that new tenant PSBA, which will take up an estimated 15.6% of the asset’s NLA, is expected to contribute revenue only in Jan 2018. After adjustments, our fair value increases from S$0.83 to S$0.895. 
  • VIT currently enjoys an FY17F yield of 8.3%. 
  • As mentioned in our 2 May 2017 report (see report: Viva Industrial Trust - FV Increases To S$0.825), the tax ruling is one positive catalyst on the horizon for VIT. We estimate that a ruling in VIT’s favor will add around 0.5 S cents to our fair value. 
  • Given that Viva Industrial Trust's current price levels have exceeded our fair value, we downgrade VIT from Buy to HOLD with a fair value of S$0.895.

Deborah Ong OCBC Investment | 2017-07-27
OCBC Investment SGX Stock Analyst Report HOLD Downgrade BUY 0.895 Up 0.830