Broker's take: OCBC downgrades Viva Industrial Trust to 'hold'

BROKER OCBC Investment Research has downgraded its rating on Viva Industrial Trust (VIT) from "buy" to "hold", decreasing its fair value estimate on the counter from S$0.93 to S$0.90.

As at 11.11am on Thursday, units in VIT were trading at S$0.89 per unit.

OCBC analyst Deborah Ong noted that VIT's first-quarter results came in within expectations, with revenue increasing by 4.8 per cent to S$28.7 million, on the back of higher earnings from Viva Business Park, UE BizHub, as well as 6 Chin Bee Avenue which was acquired in January last year. Nonetheless, this was offset by lower rental income from Jackson Square.

"Despite the revenue growth, distributable income dropped 9.2 per cent year-on-year (y-o-y) to S$16.2 million, mainly due to the management fees being paid in cash alone, as opposed to a combination of cash and stapled securities."

That being said, the broker also noted that growth outlook for the trust remains positive, with all assets except Jackson Square registering flat to positive y-o-y revenue growth.

"Going forward, we continue to expect double-digit rental reversions for the leases expiring at UE Bizhub later this year, given the opening of the Downtown Line connection at Expo MRT late last year."

More significantly, OCBC also noted that the trust seems to be waiting on a merger - with the period of exclusivity for discussions on the proposed merger with ESR-Reit extended from May 15 to May 31.

According to Bloomberg, the firms are now waiting for final approvals from a Singapore regulator before announcing the deal.

Subject to further announcements from VIT on the potential merger, OCBC has decreased its fair value estimate on the stock, mainly due to the management fees being paid in cash.