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Broker's take: Maybank Kim Eng keeps 'buy' on Viva Industrial Trust
MAYBANK Kim Eng Research kept its "buy" call on Viva Industrial Trust (VIT), saying that its positive rental reversions at its well-located business park properties are expected to gain momentum, even as investors await details of possible merger talks given its share suspension on Jan 26.
Warburg Pincus-backed ESR-Reit and VIT are in advanced talks for a share swap deal. VIT and ESR-Reit are the seventh and eighth-largest industrial Reits (real estate investment trusts) by market capitalisation. As at end-December 2017, both ESR-Reit and VIT own real estate valued at a combined S$3 billion.
Maybank Kim Eng said that it had anticipated a possible consolidation theme for smaller-cap industrial Reits given the wide gap in valuations to large-cap peers, as well as common substantial shareholders.
In its report, it said: "We believe the primary motivation for ESR and VIT would be scale, with potential combined AUM (assets under management) at S$3 billion placing it as the fourth-largest industrial Reit."
This could result in lower borrowing costs, and there would be a new overseas acquisition growth pipeline with E-Shang Redwood as sponsor, added Maybank Kim Eng.
VIT's latest fourth-quarter results, with revenue and NPI (net property income) up 10.8 per cent year on year and 14.3 per cent year on year respectively, came on the back of positive rental reversions at UE BizHub East and its Viva Business Park, as well as the 6 Chin Bee Ave acquisition completed in January 2017.
Maybank Kim Eng raised its target price for VIT to S$1.05, up from S$1.00 previously.