Friday, December 20, 2013

Viva Industrial Trust : A mix of growth and stability (CIMB)

Viva Industrial Trust  
Current S$0.77
Target S$0.87
A mix of growth and stability

▊ Viva Industrial Trust (VIT) is focused on Business Parks (BPs), a proxy for Singapore’s progress into higher value-added services. This is a growth segment for the long-term, with embedded master lease/rental support to ensure mid-term stability in cash flows while VIT works to lease up its portfolio and raise passing rents. We initiate coverage on VIT with an Add rating. Our target price is based on a dividend discount model (DDM), with a discount rate of 9.1%, implying a FY14-15 yields of 8.7% and 9% respectively. Catalysts for VIT are surprises in earnings delivery and higher occupancy.

Growth and stability
The shift towards high value-added industries continues to define Singapore’s industrial structure, with BPs playing an important role in housing such industries. VIT will have an initial portfolio of three properties in Singapore valued at S$743m, with BPs comprising 77.6% of its total asset value. Aggregate occupancy for the BPs is low at 60-64% currently, as they are either newly completed or in a transition phase from being passively managed to actively managed. This gives scope for VIT to lease up the portfolio and raise operational NPI, in our view. In particular, we believe Techno park@Chai Chee (TPCC) is currently under-rented at 60.7% occupancy and can potentially deliver NPI yields on valuation of c.13%, assuming it is fully leased at prevailing rents. Meanwhile, the master leases/rental support in place, which ensures a flow-through to VIT (and unit holders), suggests mid-term stability in NPIs. We estimate c.61-68% of VIT’s NPI will be fixed during 2013-2018.  
Inorganic growth
Mr Tong Jinquan, founder of the China-based Summit Group and key shareholder of VIT, will grant VIT ROFRs to its assets in the future. Meanwhile, one of VIT’s other sponsors, the Ho Lee Group Pte Ltd (HLG), and United Engineers Limited (UE) have each granted ROFRs to VIT on industrial assets in Singapore and logistics facilities in Korea, potentially adding over 2.3m sf of GFA to its initial portfolio.  
Key risks
We believe the key risk to VIT’s DPU is its large exposure to UE Bizhub East (UEBH), especially after the end of the income support agreement. Risks to VIT’s asset value will come from an inability to renew the lease of TPCC, which expires in c.18 years.

Source/Extract/Excerpts/来源/转贴/摘录: CIMB-Research,
Publish date: 16/12/13

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