Viva Industrial Trust - OCBC Investment 2016-11-09: Reiterate BUY; Chin Bee acquisition and placement

VIVA INDUSTRIAL TRUST T8B.SI

Viva Industrial Trust - Reiterate BUY; Chin Bee acquisition and placement

Viva Industrial Trust (VIT) has entered into an option agreement to acquire a newly completed ramp-up logistics development (Chin Bee Property) for a total acquisition cost of S$96.8m.
The asset comprises of five levels of high-spec facilities, including two levels of integrated cold room facilities. The Chin Bee Property will be leased back to the master lessee, Sharikat Logistics, for a term of 7+3 years with a 1.5% annual rental escalation starting from the third year. 23.8% of the acquisition cost will be financed by the issuance of consideration stapled securities, 45.0% by the net proceeds from a placement of 60.8m new securities, and 31.2% by debt financing.
Upon completion of the acquisition, VIT will increase its portfolio by 7.9% to S$1.28b.

60.8m new stapled securities or 7.0% of total no. previously in issue, were issued at S$0.74 each for gross proceeds of S$45.0m.
To ensure fairness, VIT’s managers intend to declare an advanced distribution for existing stapled securities for the period 1 Oct to 6 Nov, which is prior to the issue of the placement shares on 7 Nov.
In addition, 31.1m consideration stapled securities, or 3.6% of existing securities prior to the placement, will be issued to fund part of the acquisition.
New securities from the placement started trading on 7 Oct, while the consideration securities will only be issued when the acquisition is complete.
Factoring in contributions from the new acquisition, which we expect to reach completion later in 4Q16, our FY17 DPU drops slightly by 1% to 7.5 S cents on increased finance costs and an enlarged share base.

Post-placement and acquisition, VIT’s gearing is to drop slightly from 39.8% to 39.3%. Against yesterday’s price, VIT is trading at a FY17 forward yield of 10.1%. After we incorporate the aforementioned changes and roll forward our DDM-based model from FY16-FY20 to FY17-FY21, our fair value remains at S$0.81.
We note that the larger securities base should help improve trading liquidity.
We reiterate our BUY call on VIT with a fair value of S$0.81.

Deborah Ong OCBC Investment | http://www.ocbcresearch.com/ 2016-11-09

OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 0.810 Same 0.810