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Latest Earnings From Viva Industrial Trust: Growth Seen, But At What Cost?

Viva Industrial Trust (SGX: T8B) released its fiscal fourth-quarter earnings (for the year and quarter ended 31 December 2015) yesterday.

Viva Industrial Trust is a stapled trust and it focuses on business parks and industrial properties in Singapore. The trust currently has a portfolio of seven properties (there’s an additional property in the process of being acquired) that comprise business parks, logistic properties, and light industrial properties. The total portfolio is valued at S$1.12 billion.

The stapled trust’s distribution policy is to distribute 100% of its distributable income from listing (November 2013) to 31 December 2015, after which it’d distribute “at least 90%” of its distributable income. The final distributed amount is up to the trust’s manager to determine.

With these for some context, let’s dive into the trust’s results.

Financial highlights

The REIT’s annual revenue in 2015 had leapt by 19.8% to S$74.0 million. For the fourth-quarter, revenue also displayed strong year-on-year growth of 18.5% to come in at S$19.7 million.

Viva Industrial Trust’s strong top-line growth had boosted its distributable income by 15.9% to S$47.5 million for the year. For the fourth-quarter, the distributable income also jumped by 20.6% to S$12.5 million.

The double-digit growth in distributable income however, did not trickle down to distribution per stapled security (DPS). The trust’s DPS for 2015 only managed to nudge up by 2.4% to 7 cents from the previous year. DPS for the fourth-quarter actually declined by 3.9% to 1.634 cents.

The disappointing showing in DPS can partly be traced to two large private placements – that resulted in the creation of 132.4 million new stapled securities – that were undertaken in 2015 to fund acquisitions and asset enhancement initiatives (AEIs). A preferential offering on December 2015 also saw the creation of 101.1 million new stapled securities.

These developments had caused Viva Industrial Trust’s stapled securities count to spike drastically in 2015. For perspective, the trust ended 2014 with 621.9 million stapled securities.

On the balance sheet, here are some important figures to look out for:

Viva Industrial Trust balance sheet (31 Dec 2015)
Source: Viva Industrial Trust earnings presentations

For expansion, Viva Industrial Trust had raised capital through borrowings and private placements. But despite the increase in debt, gearing actually improved to 38.6% from 44.3% a year ago. That said, a gearing of 38.6% is not exactly low.

A few more things that may be worth keeping an eye on are the upcoming debt of S$270 million that is maturing in 2016 and 2017 and the REIT’s ability to refinance. If there is a higher interest rate environment, it is likely to expect higher financing costs for the REIT if it refinances its debt. The interest coverage however, remains healthy and manageable despite falling a little as mentioned earlier.

The trust’s net asset value (NAV) per stapled security rose by 7.2% from a year ago to 81.29 Singapore cents as of 31 December 2015.

Operational highlights and future outlook

As mentioned earlier, the trust had acquired two new properties in 2015 with a further property at 30 Pioneer Road to be acquired (it’s expected to complete in the first-quarter of 2016).

The general business record of Viva Industrial Trust has not been spectacular since its listing in November 2013. Despite seeing its net property income increase by 25% from 2015 to 2014, the trust’s DPS in the fourth-quarter of 2015 was the lowest quarterly pay-out since the first-quarter of 2014. The trust manager’s fees on the other hand, had increased by 24% in 2015 to S$5.1 million.

To the credit of Viva Industrial Trust’s manager, the trust’s weighted average portfolio occupancy had improved to 87% at end-2015 from 80.5% a year ago. The manager also decided earlier this month to forgo the opportunity to acquire an industrial property located at Ang Mo Kio Avenue 5 for S$255 million in order to avoid the risk of over-leveraging the trust.

Moving forward, Viva Industrial Trust warned in its latest earnings release that “rents of business park in 2016 are expected to face greater downward pressure” as a result of new supply of 1.5 million square feet of space coming online in 2016. Additional pressure on business parks is also expected to come from “softening of office rents and projected completions of office developments in the CBD [central business district].”

Investors may also want to look out for Viva Industrial Trust’s exposure to the Data Centre and Information Technology sectors. Some 46% of its gross rental income come from tenants in those sectors.

Foolish final thoughts

The trust’s trailing distribution yield is at 10.1% based on yesterday’s close of S$0.69.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Wilson Ong doesn't own shares in any companies mentioned.