SINGAPORE (July 18): RHB Research continues to rate Viva Industrial Trust (VIT) at “buy” with a 97-cent target price following the trust’s completion of its asset enhancement initiative (AEI) at Viva Business Park (VBP).
In a Tuesday report, analyst Vijay Natarajan notes that VBP’s committed occupancy rate of 95.6% for white space is better than expected, with a differential tenant mix that includes retailer Harvey Norman’s first-ever Singapore factory outlet.
Overall, he expects VBP’s white space to contribute about $7.7 million to the trust’s net property income (NPI), or 9% of total NPI, in FY18F.
“Amid a challenging retail climate, we believe VBP’s differentiated offering of sports & fitness and family-oriented themes stands out and would appeal to a wide range of people. We also expect this to have a positive spill-over effect on its business park component rental and occupancy rates,” says Natarajan.
In his view, occupancy at Jackson Square is likely to improve to 85-90% by the end of the year from 74% as of 1Q, based on RHB’s channel checks which are indicative of healthy leasing enquiries due to the commercial development’s central location.
“The recent change in rental support arrangement to a settlement guarantee ($4.9 million) would provide Viva with more flexibility on income top-up and is also likely to be exempted from taxes,” he adds.
Further, Natarajan there could be further upside in the case of a favourable ruling from the Inland Revenue Authority (IRA) of Singapore, which VIT applied to on tax transparency treatment for rental support agreements in May this year.
“This comes on the back of an amendment in the Income Tax Act [in 1Q17] to allow tax transparency treatment for rental income support payments – subject to certain conditions being met,” explains the analyst, who believes a favourable ruling could potentially save the REIT ~$2 million in tax income for FY17-18F, and boost distributable income by ~3%.
As at 9.57am, units of VIT are trading 0.55% lower at 91 cents.
