SINGAPORE (Oct 10): RHB is maintaining its “buy” call on Viva Industrial Trust with a target price of 97 cents following the trust’s decision to decline an offer to acquire a property from Ho Lee Group (HLG).

The property located in Ang Mo Kio (AMK) went for a consideration of $300 million and includes key tenants such as Seagate, Wing Tai and Singapore Power.

<hr/><a href="https://www.theedgesingapore.com/viva-industrial-trust-turns-down-offer-buy-ang-mo-kio-property" target="_blank">See: Viva Industrial Trust turns down offer to buy Ang Mo Kio property</a><hr/>

This shows that the trust is prudent in picking its assets to acquire.

In a Tuesday report, analyst Vijay Natarajan says, “While the tenants are of good quality, Viva noted that the large equity fund raising required to acquire the asset would make it non-accretive to existing unit holders. We view the move favourably and shows that the manager is careful in picking the assets to deliver growth.”

Aside from this property in AMK, the trust has a right of first refusal (ROFR) pipeline to three other industrial properties in South Korea and Shanghai.

So far, Viva has demonstrated its ability to acquire good third party assets and grow via asset enhancements.

The trust’s gearing remains high at 39.1% with a maximum limit of 45% and Natarajan expects future acquisition to be funded by a combination of equity and debt.

In 1Q17, Viva submitted an application to the Inland Revenue Authority of Singapore regarding tax transparency treatment for rental support agreements. This could save the trust about $2 million in tax income for FY17-18F.

On the other hand, Viva’s asset enhancement in Viva Business Park (VBP) was completed in July and the Jackson Square (JS) building saw higher occupancy. Natarajan estimates that these factors should contribute positively to Viva’s 3Q17 results.

As at 3.22pm, units in Viva are trading at 94 cents or 1.19 times FY17 book with a dividend yield of 7.8%.

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