Viva Industrial Trust

UOBKayhian on 19 Dec 2014

Viva Industrial Trust is is trading at an attractive yield of 8.8%. VIVA’s 78% exposure to the business park segment will benefit from the spillover office demand. Rental guarantees and master leases provide income stablity. We see good upside potential from Asset enhancement For Technopark at Chai Chee. Long underlying leases mitigate the risk of short-lease titles for Technopark@ Chai Chee and Jacksone Square.

INVESTMENT HIGHLIGHTS

• Upside from Asset enhancement For Technopark at Chai Chee. With the rezoning of Chai Chee property to “Business Park”, management plans to add value by converting the white space (15% of GFA) in Technopark at Chai Chee to retail space (about 210,000 sf of NLA) for F&B, supermarkets and lifestyle retail space. By improving amenities, adding landscaping and rebranding the site from a high-tech to business park space, we see potential improvement in occupancies and rents in the future.
• Stability of income from rental guarantee and masterleases. The company will enjoy guaranteed income from master leases with rental support and step-ups every few years. For instance, the tenancy rate for UE Bizhub’s two business park towers and a 251-room hotel is fixed at S$26m per annum regardless of the occupancy levels of the properties.
• Long underlying leases mitigate the risk of short-lease titles for Technopark@Chai Chee and Jacksone Square as the underlying leases with the Urban Redevelopment Authority (URA) are much longer, which increase the chances of Viva’s leases being renewed if HDB is satisfied with their asset enhancement plans. The weighted average land lease of 41.5 years for the portfolio remains healthy.
• Business parks to benefit from the spillover office demand. VIVA derives bulk 78% of its value from the business park segment. While the present industry wide occupancies for business park spaces are low at mid-85% levels, we anticipate that it will pickup in the medium term as rising occupancies and rentals for office space will lend support to a recovery in the segment.
• Trading at an attractive yield of 8.8%, though gearing is relatively high. Viva is currently trading at an attractive yield of 8.8%, compared with a peer average of 7.9%. However, the gearing is high at 45% levels relative to peers’ average of 33% that would require equity fund raising for acquisitions.