VIVA INDUSTRIAL TRUST

VIVA INDUSTRIAL TRUST | BUY

MARCH 26 CLOSE: $0.87

FAIR VALUE: $0.93

OCBC Investment Research, March 23

Since the start of the market rout at the beginning of February until the March 22 close, Viva has clocked a total return of -7.4 per cent, underperforming the FTSE Straits Times Reit Index by 3.7 percentage points.

We believe the underperformance has to do with investor uncertainty in anticipation of further news on the proposed merger with ESR-Reit.

Based on the initial proposal, the exclusivity is to expire on March 31, unless both parties agree to extend it or an agreement is reached.

Should an agreement on the merger be reached, we believe the share swop ratio will likely be at least dividend-neutral in order to entice Viva unit holders to accept the offer. Given that Viva is trading at a 8.6 per cent FY18F yield and 7.9 per cent FY19F yield as of March 22 close, we see this as a fairly attractive entry price.

On the other hand, should the relevant parties fail to reach an agreement, we expect the uncertainty associated with ongoing discussions to be alleviated, which may in turn help the unit price recover to prior levels.

Our forecasts and fair value of $0.93 remain unchanged. Upgrade from "hold" to "buy".

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