Viva Industrial Trust (VIT) is a SGX-listed REIT that invests in a portfolio of business parks and industrial properties in Singapore. On 4 November 2013, it was listed with an initial portfolio of 3 properties worth S$ 743.0 million. The trust has quickly enlarged its portfolio to 9 properties worth S$ 1.28 billion as at 31 December 2017. In this article, I’ll list down 9 main things that you need to know about VIT before you invest.

#1: Stock Symbol

Ticker Symbol: SGX: TB8
Market Capitalization: S$ 863.5 million (10 March 2018)

Share Price: S$ 0.885 (10 March 2018)

Industry: Reit

#2: The Business

VIT derives income mainly from these 5 properties:

  1. UE BizHub East
    This property has two components: the Business Park and Hotel. The business park has 2 office towers and 1 retail podium. Meanwhile, the hotel component is made up of a 251-room hotel, 30 serviced offices, 5 retail units and a convention centre. Combined, UE BizHub East is worth S$ 518 million. In 2017, it has made S$ 44.2 billion in revenue, thus, is the main contributor of income to VIT.  S$ 44.2 million in revenue, thus, is the main contributor of income to VIT. The sales generated is inclusive of S$ 9.47 million in rental support. As I write, this property is the only one that derives income from receiving rental support.
  2. Viva Business Park
    Formerly known as Technopark @ Chai Chee, VIT has undertaken a 2-Year asset enhancement initiative (AEI) works to revamp, enhance, and revitalize the property into Viva Business Park. The management has completed the AEI works in 2017 and thus, bringing the value of Viva Business Park to S$ 350 million. In 2017, Viva Business Park has generated S$ 41.8 million in revenue, thus, is the second main income contributor to VIT.
  3. Jackson Square
    On 21 November 2014, VIT has acquired Jackson Square for S$ 80.0 million from Jackson International Pte Ltd (JIPL). It consists of four blocks of 2 – 6 storeys of light industrial buildings in Toa Payoh. The property is leased back to JIPL under a 5-year rental guarantee which was worth S$ 58.0 million. However, on 23 April 2017, VIT received a liquidation notice from JIPL. This led to a settlement agreement that was dated on 21 May 2017 which entitled VIT to receive S$ 1 million in cash payments and another S$ 3.89 million in rental support bank guarantee. Inclusive of this amount, VIT has made S$ 14.1 million in revenue from Jackson Square in 2017. The value of this property had dropped to S$ 73.2 million in 2017.
  4. 6 Chin Bee Avenue
    On 16 January 2017, VIT has acquired 6 Chin Bee Avenue for S$ 87.3 million. It is a 5-storey high-specification logistics development that was newly completed in 2016. It is leased to Sharikat Logistics under a 7-year triple-net master lease agreement at S$ 7.44 million per year. As at 31 December 2017, 6 Chin Bee Avenue is worth S$ 94.3 million and has contributed S$ 7.38 million in revenue for the year 2017.
  5. 11 Ubi Road 1
    11 Ubi Road 1 consists of 2 blocks of 7-storey and 2-storey buildings. As at 31 December 2017, it is valued at S$ 85.0 million. In 2017, this property has contributed S$ 7.21 million in revenue, thus, making it the fifth largest income contributor to VIT.

In total, the 5 properties above had contributed S$ 114.6 million in revenue to VIT, thus, contributing 90.6% of its total revenue in 2017.

#3: The Financials

Since its listing, VIT has reported growth in revenue & distributable income. It is mainly due to its expansion of its property portfolio over the last 3 years.
 

Source: Quarterly Reports of VIT

#4: Lease Expiry

As at 31 December 2017, VIT has recorded weighted average occupancy rate of 90.6% for its property portfolio. It derives income from 155 tenants which mainly involved in the IT, e-Business, and data centre operations. The top 10 tenants have accounted for 43% of its total revenue in 2017. Moving forward, 52% of its leases would expire beginning in the financial year 2020 onwards.


Source: VIT’s Results Presentation for Year 2017 on 26 January 2018

#5: Major Announcement

On 28 January 2018, VIT has received a proposal for a merger between it and ESR REIT. The merger is intended to create:

  1. The Fourth Largest Industrial REIT listed on the SGX valued at S$ 3 billion.
  2. A diversified Pan-Asia Industrial REIT with a visible growth pipeline of regional assets sponsored by ESR, a logistics real estate developer, operator, and fund manager with presence in China, India, Australia, Singapore, Japan, and Korea.

Presently, the managers of both VIT and ESR REIT are in discussions on the merger. Both parties would make the necessary announcements on it should there be material developments on the merger in the near future.

#6: Major Risk

As at 31 December 2016, VIT has 3 properties where the remaining land lease is under 25 years. They are:

  1. Viva Business Park: 14.3 years
  2. Jackson Square: 12.4 years
  3. 30 Pioneer Road: 20.1 years

There is no materials provided by VIT in regards to the management’s intent or decisions to be made once these land leases expire.

#7: Valuation

As I write, VIT is trading at S$ 0.885 a unit.

As at 31 December 2017, VIT has reported having S$ 0.765 in net asset value a unit. Thus, its current P/NAV works out to be 1.16.

VIT adopts a distribution policy to declare and pays out at least 90% of its distributable income on a quarterly basis. The trust has declared and paid 7.47 cents in DPU for 2017. If VIT is able to maintain its DPU at 7.47 cents, its expected gross dividend yield is 8.4%.

#8: Debt Profile

As at 31 December 2017, VIT has S$ 525.0 million in borrowings. Its gearing ratio is 39.8%. Its weighted average debt maturity stands at 2.5 years, Its cost of borrowing averages at 3.9%.

#9: Investor Relations

For further enquiries or to request for additional investment information on VIT’s Investors Relation matters, you may contact:

Ms Lyn Ong

Investor Relations Manager

Email: lyn.ong@vivaitrust.com

Website: http://www.vivaitrust.com/contact_ir.html:

Major Shareholders

The major shareholders of VIT and their latest shareholdings are as followed:

– Leading Wealth Global Inc: 43.1%

– Ho Lee Group Trust: 6.8%

Notes:

Leading Wealth Global Inc is 100%-owned by Longemont Real Estate Pte Ltd which is 100%-owned by Shanghai Summit (Group) Co. Ltd. The company is also 100%-owned by Tong Jinquan. In addition to his direct shareholdings of 5.64% and indirect shareholdings from his interest in other entities, in total, Tong Jinquan has 49.71% shareholdings, thus, making him the ultimate main shareholder of VIT.

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2 COMMENTS

  1. Hi,

    Thanks for the write-up. Does it have any rental support.and how many years of land lease each property has?

    Enjoy the articles but the above info will make it more insightful.

    • Hi,

      Presently, UE BizHub East is the only property that has rental support. The rental support for Jackson Square has been terminated. As at 31 December 2016, all properties have above 30 years (most in the range of 40 – 50 years) in remaining land lease except for Viva Business Park (14.3 years), Jackson Square (12.4 years), and 30 Pioneer Road (20.1 years).

      Is this a risk? My take is a definite ‘Yes’. The risk stems from not knowing whether Viva is able to prolong the land leases once they expire. As such, I think this factor should be taken into account before investing. The question now is whether this risk is worth taking for you if you are interested to invest. Again, there is no right or wrong answer.

      To some investors, they intend to invest in REITs where the properties have longer land lease term. They are willing to settle with lower dividend yields and have a ‘peace of mind’ as they are rest assured that their land leases would not expire for a very very long time.

      Meanwhile, there are investors who are willing to take a chance with Viva as the REIT is paying out 8% – 9% in dividend yields. Let’s say, you bought Viva at S$ 0.845 a unit and you reckon that it has the ability to pay out distributions per unit of S$ 0.075 a year until its first land lease expires which is 11.4 years (31 December 2017). Let’s also assume that you hold onto Viva for 11.4 years and collect S$ 0.075 a year in dividends, you would collect a total of S$ 0.855 in dividends after 11.4 years. This means, you would have recover the full amount of your investment in Viva with dividends. Also, after 11.4 years, your Viva units would still have some value (could be higher or lower than S$ 0.845). If you choose to dispose it, your proceeds can be accounted as ‘gains’ from your investment. The above is just a sharing of ideas or a perspective of how certain investors may look at Viva.

      Of course, there are investors who may invest based on a ‘pairing-concept’ where their portfolio consists of both REITs with longer remaining land leases but with lower dividend yield and shorter remaining land leases but with higher dividend yield. It’s diversification with the intention of getting the highest dividend yields possible whilst minimizing risks of incurring losses if one of the REIT goes wrong.

      With that said, there is no such a thing as ‘Super Perfect’ stocks or REITs listed in any stock exchanges. Each individual stock is unique with their pros and cons. For me, if I found a particular drawback in any stock, I would want a buffer as additional assurance. It’s like a bank where they charge low interest rates on secured debt like mortgages and high interest rates on unsecured debt like personal loans or credit cards. Hence, investors should perform their due diligence before getting into anything. That’s what I’m personally advocating.

      If you have any comments, please type in below. Glad to know about it.

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