SINGAPORE (Jan 29): Maybank is reiterating its “buy” call on Viva Industrial Trust (VIT) with a higher target price of $1.05 following the group’s strong 4Q results which were announced on Friday.

VIT’s 4Q17 DPU rose 5.5% to 1.857 cents from 1.760 cents in 4Q16.

Distributions declared also increased by 13.4% y-o-y to $18.1 million, despite an increase in the number of issued stapled securities.

Its gross revenue increased by 10.8% to $28.3 million from $25.6 million last year, mainly due to additional rental contributions from 6 Chin Bee Avenue and higher rental and other income contributions from Viva Business Park and UE BizHub EAST (UEBH).

Net property income (NPI) registered a 14.3% increase over 4Q to $20.7 million from $18.1 million a year ago.

See: Viva Industrial Trust 4Q DPU rises 5.5% to 1.857 cents

As such, VIT recorded a positive 2.6% rental reversion for the portfolio in FY17.

In a Monday report, analyst Chua Su Tye says, “Viva’s key drivers – positive rental reversions at its well-located business park properties (55% of its AUM) – are expected to gain momentum, with recovering industrial sector fundamentals, and improving accessibility to its UE BizHub East asset.”

Meanwhile, Bloomberg on Friday reported that there were talks of a potential merger between VIT and ESR-REIT, which is backed by its sponsor E-Shang Redwood, Warburg Pincus’s Asian logistics arm, to expand ESR-REIT’s portfolio.

See: ESR-REIT, Viva Industrial Trust said to plan merger

The terms of the potential combination will likely to be announced in the next few weeks.

“We believe the primary motivation for ESR and VIT would be scale, with potential combined AUM at SGD3.0b placing it as the 4th largest industrial REIT. This could result in lower borrowing costs,” says Chua.

Furthermore, the analyst believes that there would be a new overseas acquisition growth pipeline with E-Shang Redwood as sponsor.

As at 11.00am, units in VIT are trading at 94 cents or 1.1 times FY18 book with a DPU yield of 7.4%.