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

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

  • Master lease with rental escalation.
  • Placement of 60.8m securities.
  • Reiterate BUY rating.

Acquisition of new logistics development 

  • 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.

Private placement and consideration shares 

  • 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.

Fair value remains at S$0.81 

  • 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 | 2016-11-09
OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 0.810 Same 0.810