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Viva Industrial Trust - RHB Invest 2016-08-18: An Unpolished Gem In The Industrial Space

Viva Industrial Trust - RHB Invest 2016-08-18: An Unpolished Gem In The Industrial Space VIVA INDUSTRIAL TRUST T8B.SI

Viva Industrial Trust - An Unpolished Gem In The Industrial Space

  • Viva Industrial Trust (Viva) is a business park-focused S-REIT with a 100% Singapore-based portfolio. 
  • Since its listing, it has grown steadily through acquisitions/AEIs and currently has eight properties with an asset value of SGD1.1bn. 
  • We expect DPU to grow moving forward, with additional contributions kicking in from latest acquisitions and AEI completions. 
  • Key risk is its ability to maintain rental income at UE Biz Hub post-expiry of rental support in 4Q18. 
  • Viva is trading at a consensus FY16F yield of 9.3% vs industrial REITs’ 7% average. We do not have a rating on the stock.


Industrial REIT focusing on business parks. 

  • Among the industrial S-REITs, Viva has the highest exposure to the favourable business park segment (demand-supply dynamics), which makes up 58%/59% of its asset value and gross revenue. 
  • Since its Nov 2013 listing, it has also grown through yield accretive acquisitions and now has eight properties vs just three previously.


VBP redevelopment a key near-term growth driver. 

  • Viva Business Park (VBP) is currently undergoing asset enhancement initiative (AEI) works to transform from a high-tech industrial space to a business park with retail, food and beverage (F&B) and other commercial uses. 
  • Post AEIs, management expects an incremental net property income (NPI) contribution of SGD9.8m pa, which translates to a 12% ROI. Phases 1&2 of the AEI works have been completed with close to 90% occupancy achieved. Phase 3 is expected to be completed by 4Q16. 
  • With a steady stream of incremental NPI contributions kicking in from 3Q16, we expect distributable income to grow correspondingly.


Good-quality tenant profile. 

  • One of Viva’s key strengths, in our view, is its strong tenant profile with nearly two-thirds comprising blue-chip MNCs and government-linked companies. 44% of overall tenants are in IT, e-business or data centre operations, which we believe are areas with growth potential. 
  • Viva has very minimal (< 1%) exposure to the troubled oil & gas sector.


No refinancing concerns until 2018. 

  • With proactive refinancing of SGD270m loans expiring in the next two years, Viva has no refinancing requirements until 2018. 
  • Its weighted average debt maturity stands at 3.7 years with total debt cost of 3.95%. 
  • Standard & Poor’s has assigned a corporate credit rating of BB. 


Key risks. 

  • These include Viva’s ability to increase rental rates post the expiry of rental support at UEBH and Jackson Square in Nov 2018-2019 respectively, and relatively high gearing levels of 40% (as at 2Q16) providing limited debt headroom for potential acquisitions and operation of good-quality overseas properties, which is yet to be proven. 


High yield gap presents room for yield compression. 

  • Viva is currently trading at FY16 Bloomberg consensus yield of 9.3%, a good 230bps and 300bps above industrial REITs’ average of 7% and S-REIT average of 6.3%, respectively. 
  • The high yield gap over peers and sector average offers scope for yield compression amidst increasing global appetite for stable yield instruments. 




Vijay Natarajan RHB Invest | http://www.rhbinvest.com.sg/ 2016-08-18
RHB Invest SGX Stock Analyst Report NOT RATED Maintain NOT RATED 99998 Same 99998


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