3 Things Viva Industrial Trust’s Management Wants Investors To Know About Its Business

In late January, Viva Industrial Trust (SGX: T8B) released its 2017 fourth quarter and full year earnings update. As a quick introduction, Viva Industrial Trust is a stapled trust that consists of a business trust, and a real estate investment trust. Its focus is on owning industrial real estate and business parks, and it currently has a portfolio of nine properties in Singapore.

The Manager of Viva Industrial Trust had given a presentation on the trust’s latest results. In the presentation deck, I saw three slides on the trust’s business that I think investors should pay attention to.

The first slide shows a high-level summary of Viva Industrial Trust’s income statement for the fourth quarter of 2017:

Source: Viva Industrial Trust’s 2017 fourth quarter earnings presentation

We can see that the trust had a good quarter, with strong growth in its gross revenue, net property income (NPI), distribution declared, and distribution per stapled security (DPS).

The trust’s growth was driven mainly by positive rental reversions achieved at two of its properties, namely, UE BizHub East and Viva Business Park. New contributions from the 6 Chin Bee Avenue property, which was acquired in January 2017, also contributed to Viva Industrial Trust’s positive performance..

The next slide I want to look at shows the lease expiry profile of Viva Industrial Trust:

Source: Viva Industrial Trust’s 2017 fourth quarter earnings presentation

At the end of 2017, Viva Industrial Trust’s portfolio had a weighted average lease to expiry (WALE) of 2.6 years. For a more granular breakdown, 48% of the trust’s leases will expire by 2019, 21% will expire in 2020 and 2021, and the remaining 31% of the trust’s leases will expire from 2022 onward.

One positive takeaway is that the trust has a staggered lease expiry profile, thus avoiding concentration of lease expiries in any one particular year. Still, the trust might face some challenges in renewing up to 48% of its leases in the next two years. Investors may want to pay close attention to how well Viva Industrial Trust handles its upcoming lease renewals.

The last slide I want to discuss shows Viva Industrial Trust’s DPS, as well as the average DPU (distribution per unit) for a basket of industrial REITs, over the past 10 quarters:

Source: Viva Industrial Trust’s 2017 fourth quarter earnings presentation

Over the past few years, REITs that own industrial properties have been facing significant pressure due to an increase in supply of new industrial space. As such, it is not surprising to see that the average DPU for industrial REITs has declined.

Yet, Viva Industrial Trust has managed to buck the trend given the growth in its DPS over the last 10 quarters. This is an indication that Viva Industrial Trust is likely doing something that is different and better than its peers.

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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 Lawrence Nga doesn’t own shares in any companies mentioned.