Viva Industrial Trust - OCBC Investment 2018-08-14: Deal Or No Deal?

Viva Industrial Trust - OCBC Investment Research 2018-08-14: Deal Or No Deal? VIVA INDUSTRIAL TRUST SGX:T8B

Viva Industrial Trust - Deal Or No Deal?

  • 31 Aug EGM and Scheme Meeting.
  • Terms are “principal-positive”.
  • Accept the offer.

2Q results within expectations

  • Viva Industrial Trust’s (VIT) 2Q results were within expectations. Gross revenue increased 3.9% y-o-y to S$28.7m. Including 50% of the distributable income attributable to the net income tax credit, the distribution declared was 3.1% higher y-o-y at S$18.6m.
  • DPU increased 2.2% to 1.902 S cents or 28.0% of our full-year forecast which is within our expectations.
  • Over 44.6% of the leases due for renewal this year have been renewed in 1H18 with a positive rental reversion of 2.3%.

Each VIT unit for 1.6 new ESR-REIT units and 9.6 S cents in cash

  • Under the terms of the merger, each Viva Industrial Trust unit can be exchanged for 9.6 S cents in cash and 1.6 new (post-merger) ESR-REIT units. Using our S$0.90 fair value for stand-alone Viva Industrial Trust and the S$0.58 Bloomberg consensus fair value for stand-alone ESR-REIT, we estimate that the fair value of the post-merger ESR-REIT entity should lie at ~S$0.52 per unit (and above, assuming that there are positive synergies to be gained from the merger).
  • Overall, our estimate implies that 1 Viva Industrial Trust unit can be traded for an aggregate value of at least S$0.934 (including the 9.6 S cents in cash). Against Viva Industrial Trust’s S$0.90 closing price as at 13 Aug, we see these as “principal-positive” terms for Viva Industrial Trust.

~ SGinvestors.io ~ Where SG investors share

Key benefits to the merger

  • We see three main benefits to the merger.
    • First, the asset diversification of the enlarged portfolio would mean that the merged entity is less affected by Viva Industrial Trust’s fall-off in income support at the end of this year.
    • Second, there is the potential to refinance at lower costs and access to a greater pool of financing options.
    • Third, higher liquidity and there is the possible inclusion in the investible universe for more institutional funds.

EGM and Scheme Meeting on 31 Aug

  • For the merger to go through, approvals need to be sought from both ESR-REIT’s and Viva Industrial Trust’s unitholders. Note that Viva Industrial Trust’s EGM and Scheme Meeting will be held on 31 Aug 2018 at the Stephen Riady Auditorium at NTUC Centre.
  • Given the favourable terms, we see it in Viva Industrial Trust unitholders’ benefit to ACCEPT the offer. 

Deborah Ong OCBC Investment Research | https://www.iocbc.com/ 2018-08-14
SGX Stock Analyst Report ACCEPT OFFER Maintain ACCEPT OFFER 0.900 Same 0.900