SINGAPORE (Aug 21): Viva Industrial Trust has been one of the top outperformers in the S-REIT universe, gaining about 22% year to date.
“The REIT appears to lead a semi-charmed life, with successful settlement of Jackson Square, completed AEI at Viva Business Park and potential upside from tax writeback,” says lead analysis Yeo Zhi Bin in a Friday report.
The CIMB team recently spent some time on the road in Kuala Lumpur with Viva Industrial’s head of investment Frank Ng and investor relations manager Lyn Ong.
During the non-deal roadshow, Yeo says investors displayed interest in the REIT, with most having done their homework on the company before meetings.
Yeo says Viva Industrial continued to outperform its small/mid-cap industrial peers, delivering quarter improvement in 2Q17 DPU.
Driven by inorganic contribution from 6 Chin Bee Ave and organic improvement in Viva Business Park (VBP), the REIT registered 2Q17 DPU of 1.861 cents, up 6.3% y-o-y and up 0.4% q-o-q. If not for the one-off tax provision, CIMB calculates that 2Q17 DPU would have been 1.935 cents, up 10.6%.
Viva Industrial has also reached a settlement agreement with Jackson International Pte Ltd (JIPL) under which the REIT would receive a $4.9 million payment and Jackson International would be discharged from its obligations under the Jackson Square rental support agreement.
The manager estimates that the settlement sum would be sufficient to cover the rental support agreement until end 2018.
“Impressively, Viva Industrial managed to backfill the space vacated by the US oil services company McDermott in 2Q17. Viva Industrial signed new leases for over 70,000 sf of space in Jackson Square,” says Yeo.
Private education centre PSB Academy took up about 15% of the property’s NLA or over 50,000sf of space, while telco MyRepublic took up another roughly 5%. As a result, occupancy for Jackson Square remained resilient at 89% in 2Q17 vs 91% at end 1Q17.
AEI for VBP is fully completed, with the third and final phase of AEI obtaining temporary occupation permit (TOP) in May 2017.
Viva Industrial welcomed Harvey Norman’s first factory outlet in Singapore, which will take up 38,500sf of space on two floors.
About 92.3% of VBP’s “white” space has been committed but only 63.6% of “white” space contributed to 2Q17 income. VIT believes that quarterly DPU will continue to improve q-o-q over the next 2-3 quarters, with contribution from the third phase of AEI.
In 1Q17, the Income Tax Act was amended to allow tax transparency to be accorded to rental income support payments. Pending the outcome of the advance tax ruling, VIT has continued to provide for income tax expenses for rental income support.
Should Viva Industrial receive a favourable tax ruling, it estimates 1H17 tax expenses of $1.7 million or 1.75 cents per unit may be written back. The manager also thinks there could be tax savings on future rental support from UE BizHub East.
As at 11.01am, units in Viva Industrial are trading at 92 cents.
