Viva Industrial Trust’s Latest Earnings: 41% Spike In Net Property Income, But Owners Can’t Benefit

Viva Industrial Trust (SGX: T8B) released its fiscal second-quarter earnings (for the three months ended 30 June 2016) yesterday.

As a brief background, 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 eight properties that comprises business parks, logistic properties, light industrial properties, and a hotel. The total portfolio is valued at S$1.19 billion as of 30 June 2016.

With that, let’s dive into the trust’s results.

Financial highlights

The trust’s gross revenue in the second-quarter of 2016 had surged by 31.3% from a year ago to end at S$23.39 million. As a result, its net property income leapt by 41.0% year-on-year to S$17.2 million.

These growth came mainly on the back of three recent acquisitions (made on November 2015 and April 2016) and progressive completion of asset enhancement initiatives at Viva Business Park.

Viva Industrial Trust’s strong top-line growth had led to a 28.8% year-on-year jump in its distributable income to S$15.15 million for the reporting quarter.

But, the trust’s DPS (distribution per stapled security) for the second-quarter of 2016 had declined by 5.4% to 1.75 Singapore cents from 1.85 Singapore cents seen a year ago. There was a big 23% increase in the number of stapled securities that existed at the end of June 2016 as compared to end-June 2015.

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

Viva Industrial Trust table
Source: Viva Industrial Trust’s earnings presentations

In sum, Viva Industrial Trust had increased its borrowings (of over S$100 million) over the last 12 months, leading to its gearing ratio increasing to 40.0%. Its borrowing cost and interest coverage had also both weakened. As a reminder, REITs in Singapore have a regulatory gearing limit of 45%.

The good thing is Viva Industrial Trust has no debt to refinance until 2018 (S$100 million is coming due that year).

The trust’s net asset value (NAV) per stapled security declined by 2.8% from a year ago to S$0.807.

Valuation and the road ahead

For the second-quarter of 2016, Viva Industrial Trust’s portfolio occupancy rate came in at 87.9%, a stark improvement from the 80.0% last year.

At the same time, the trust’s manager expects Viva Business Park to “progressively contribute income.” There are ongoing asset enhancement initiatives at the business park and they are expected to be completed by the end of 2016. The newly-acquired 30 Pioneer Road (bought in April) is also expected to help the trust grow its revenue.

Wilson Ang, the chief executive of Viva Industrial Trust’s manager, appears upbeat about the trust’s prospects. These are some of his comments found in the earnings release:

“Our strategic acquisitions over the past quarters, combined with the gradual fruition of our AEI [asset enhancement initiative], have reaped healthy returns in 2Q2016.

Our portfolio fundamentals have further improved with diversified revenue streams and higher occupancy rates, underpinned by a strong focus on the business park sector which is more resilient than other industrial property sectors.

Looking ahead, we expect to see further upside as we welcome more tenants at VBP [Viva Business Park] and recognise the full income contribution from our new Pioneer Road asset.”

Ang’s words notwithstanding, Viva Industrial Trust did warn about “subdued property market conditions.” The trusted said:

“According to CBRE Research, the business parks sector put in a resilient performance in 2Q2016 although effects from the weak overall business and property sentiments have begun to weigh on the market.”

At its closing unit price of S$0.77 yesterday, Viva Industrial Trust is priced at 0.95 times its book value.

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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 James Yeo doesn’t own shares in any companies mentioned.