SINGAPORE (May 23): RHB and OCBC Investment Research are reiterating their “buy” calls on Viva Industrial Trust (VIT) after the trust this morning announced that it had reached a settlement agreement with Jackson Private Limited (JIPL) and its director and shareholder, Tan Phong Guan.
While RHB’s target price on the trust remains unchanged at 85 cents, OCBC’s fair value estimate has been increased to 83 cents from 82.5 cents previously.
(See also: Jackson Square integrated manager seeking liquidation: Viva Industrial REIT)
(See also: Jackson International liquidation to have 'minimal' impact on Viva Industrial Trust)
Terms of the agreement included a $1 million cash payment to the REIT trustee on top of the rental support bank guarantee of $3.9 million, and additional security deposits of $1.7 million in relation to the existing leases at Jackson Square which have been taken up by JIPL subsidiaries.
“The move is positive and would mitigate market concerns over the potential drop in rental income. We expect occupancy at JS to move back to 85-90% by the end of the year, owing to its central location. The stock offers attractive yields of 9.1%/9.3% for FY17F/18F,” says RHB analyst Vijay Natarajan in a Tuesday note post the announcement.
“Key catalysts ahead include higher contributions from Viva Business Park (VBP), positive rent reversions, and potential tax transparency treatment for rental support income,” he adds.
Meanwhile, OCBC is changing its occupancy assumptions for Jackson Square which were previously ~55% occupancy from 2Q17 to 4Q17, ~65% for FY18, and ~75% for FY19.
The research house now estimates that VIT has about 12 months’ worth of security deposits for the leases taken up by JIPL’s subsidiaries, and has adjusted its assumptions from 74% to 84% occupancy from 2Q17 to 4Q17, ~78% for FY18, and ~85% for FY19.
“As mentioned in our previous reports, we expect the termination of the rental support agreement at JS to have little to no impact on FY17 DPU. After taking into account the settlement agreement and our new occupancy assumptions, we expect a shortfall of around $0.7m in what would have been the JIPL rental support due in FY18 as well as a $1.3m shortfall in FY19,” explains Deborah Ong, lead analyst at OCBC.
“Nonetheless, we look forward to improvements in underlying rental income at VBP and UEBH in the coming years and find current price level attractive,” says Ong.
As at 11.56, units of VIT are trading 2 cents higher at 82 cents.
