Viva Industrial Trust - RHB Invest 2016-09-09: Pure Play Domestic REIT With Superior Yields

VIVA INDUSTRIAL TRUST T8B.SI

Viva Industrial Trust - Pure Play Domestic REIT With Superior Yields

We initiate Viva Industrial Trust (VIT) with a BUY recommendation and TP of SGD0.85 presenting a total return of 20%.
Key upside drivers include:
1. Rental contributions from AEIs at Viva Business Park (VBP);
2. Income stream from its recent acquisitions;
3. Re-rating of UE Biz Hub (UEBH) post downtown line completion.

Key risk is its ability to maintain rental income at UEBH post expiry of rental support in 4Q18.
VIT offers attractive FY17F yields of 9.7% vs. Industrial REITs average of 7.2%.

Viva Industrial Trust (VIT) is a business park focussed S-REIT with an 100% Singapore-based portfolio.
Since listing in Nov 2013, VIT has grown steadily through acquisitions/AEIs and currently it has 8 properties with asset value of SGD1.1bn.
Our TP is derived based on 5-year DDM model (Cost of Equity: 8.7%, Terminal growth: 0%).
We forecast DPU to grow by 10%/2% in 2017/18 mainly due to contributions from AEIs at VBP. Our TP translates into FY17F dividend yield of 8.9% and P/B of 1.04x.

Among Industrial S-REITs, VIT offers the highest portfolio exposure to the favourable business park segment (demand-supply dynamics) which accounts for 58%/59% of its asset value and gross revenue.
Its light industrial (21% of assets), logistics (7%) and hotel (14%) are under long-term master leases with rental guarantee and rental escalation clauses providing rental stability for unit holders.

VIT is currently undertaking SGD20m asset enhancement initiatives (AEI) at VBP which will add an additional 214,951 sqft GFA of white space.
VIT has so far secured 21 tenants offering sports and fitness, F&B and family oriented amenities for the white space, bringing occupancy to > 90%. The recent rents signed are in the range of SGD 7-10psf.
We expect an additional revenue of SGD11m p.a (~10% increase) post completion by 4Q16.
We also expect spill over benefits to business park rents which are below SGD3 psf compared to nearby rents of ~SGD4 psf.

About 63% of tenant mix is comprised of bluechip MNC and GLCs.
Information Technology, e-business or data centre are its biggest clientele by trade sector accounting for 44% of income. It has very minimal exposure to the troubled Oil & Gas sector.

Key risks includes VITs ability to achieve rental uplift post expiry of rental support at UEBH and Jackson Square in Nov 2018/19 respectively. High gearing levels of 40% provides very limited debt headroom and with limited yield accretive opportunities in Singapore, management’s ability to acquire and operate good quality overseas properties remains to be proved.
For a complete analysis, this initiation report should be considered together with our previous report An Unpolished Gem In The Industrial Space

Vijay Natarajan RHB Invest | http://www.rhbinvest.com.sg/ 2016-09-09

RHB Invest SGX Stock Analyst Report BUY Initiate BUY 0.85 Same 0.85