• 1Q17 DPU up 13.2% YoY
• Cost of equity at 8.5%
• FV increases to S$0.825

1Q17 Results in Line With Expectations

Viva Industrial Trust’s (VIT) 1Q17 results were within expectations. 1Q17 revenue jumped 24.9% YoY to S$27.3m or 25.1% of our full-year forecast, boosted by a S$1.6m contribution from the Chin Bee acquisition as well as additional contribution of S$2.5m from Viva Business Park (VBP). 1Q17 NPI increased 28.8% YoY to S$20.3m. 1Q17 DPU increased 13.2% YoY to 1.854 S cents, or 24.5% of our full-year forecast. VIT’s portfolio occupancy as a whole has improved from 86.9% in 1Q16 to 91.1% in 1Q17.

Looking Ahead to VBP and UEBH

Looking forward, we expect the contributions from VBP to continue increasing as committed tenants move in and start paying rent. 95.6% of the “white space” at VBP was committed as at end-Mar, while only 58% of the “white space” had contributed to 1Q17 income. We also expect positive rental reversions at UE BizHub with 24.6% of leases by NLA expiring in FY18 (see Exhibit), given the expected completion of the Downtown line in 2H17.

For Jackson Square (JS), we note that new leases have been signed from the ICT and technology sector such that current committed occupancy excluding Jackson International (JIPL) subsidiaries is 50%. Total occupancy at JS as at end-Mar, which included McDermott, is 91%. For now, we keep to our assumption of an average occupancy of 55% for JS from 2Q17 to 4Q17.

Tax Ruling: A Potential Catalyst

We note that VIT is currently waiting for the outcome of an advance tax ruling on the application of the tax transparency treatment to their rental support income. Should the tax ruling be in their favor, VIT could save paying income tax on their rental support in coming quarters. VIT’s income tax was S$0.5m for 1Q17, S$2.1m for FY16 and S$2.2m for FY15. We currently project S$2.4m in income taxes in FY17. After adjusting our beta, our cost of equity reduces slightly from 8.7% to 8.5%. After tweaking our VBP and UEBH assumptions, our fair value increases from S$0.795 to S$0.825. We re-iterate BUY on VIT with a fair value of S$0.825.

Source: OCBC Research - 2 May 2017