Viva Industrial Trust - OCBC Investment 2018-05-17: Waiting On A Merger?

Viva Industrial Trust - OCBC Investment 2018-05-17: Waiting On A Merger? VIVA INDUSTRIAL TRUST SGX: T8B

Viva Industrial Trust - Waiting On A Merger?

  • 7.6% FY18F yield as at 16 May’s close.
  • Management fees to be paid in cash.
  • Period of exclusivity extended to end May.

In line set of results

  • Viva Industrial Trust's (VIT) 1Q results were within expectations. 
  • Revenue increased 4.8% or by S$1.3m y-o-y to S$28.7m, on the back of S$0.8m higher revenue from Viva Business Park, S$0.4m higher revenue from UE BizHub, S$0.3m more income from 6 Chin Bee Avenue (which was acquired in mid-Jan 2017), offset by S$0.2m lower rental income from Jackson Square.
  • Despite the revenue growth, distributable income dropped 9.2% y-o-y to S$16.2m, mainly due to the management fees being paid in cash alone as opposed to a combination of cash and stapled securities. However, distribution declared was 0.8% higher y-o-y due to a S$1.78m top-up consisting of all previously retained distributable income arising from the Jackson Square Rental Support settlement.
  • As a result of a 1.6% y-o-y increase in the number of stapled securities for calculation of DPU, DPU dropped 0.9% y-o-y to 1.838 S cents or 24.4% of our initial full-year forecast.

Growth outlook remains positive

  • The growth outlook for VIT’s assets remains positive. All assets except for Jackson Square clocked flat to positive y-o-y revenue growth. The REIT manager has renewed about 10.2% of the total area due for renewal in FY18 with a positive rental reversion of 2.6% (which is similar to the FY17 rental reversion rate).
  • Going forward, we continue to expect double-digit rental reversions for the leases expiring at UE Bizhub later this year, given the opening of the Downtown line connection at Expo MRT late last year.

Merger discussions in final stages?

  • The period of exclusivity for the discussions on the proposed merger with ESR-REIT has been extended from 15 May to 31 May 2018. We note that according to a Bloomberg article, the firms are waiting final approvals from a Singapore regulator before announcing the deal.
  • After adjustments, our fair value decreases from S$0.93 to S$0.90, mainly due to the management fees being paid in cash.
  • VIT is trading at 7.6% FY18F yield and 6.9% FY19F yield as of 16 May’s close. Subject to further announcements from VIT regarding the potential merger, we downgrade from Buy to HOLD on VIT.

Deborah Ong OCBC Investment | 2018-05-17
SGX Stock Analyst Report HOLD Downgrade BUY 0.90 Down 0.930