Yield-Hungry Investors Eye IPO of Viva Energy REIT
Aiming to raise more than $900 million, the IPO is one of the largest listings so far this year and is expected to attract yield-hungry investors.
Viva Energy REIT is expected to list on the ASX on Wednesday 3 August 2016 with the ticker code VVR.ASX for $2.20 per share. Wise-owl has anlaysed the float which is classified as an REIT.
Viva Energy REIT is an Australian property group which – upon settlement - will own 425 service station site locations in Australia. The float is a Real Estate Investment Trust (‘REIT’), which will be the landlord of these sites. The properties will be leased to Viva Energy (Tenant) and the sites are operated by ‘Coles Express’. Put simply, Viva Energy REIT will generate income by collecting rent from Viva Energy.
Aiming to raise more than $900 million, the IPO is one of the largest listings so far this year and is expected to attract yield-hungry investors. The REIT has high income visibility with an average lease expiry of 15.3 years, 100% occupancy and contracted rent growth of 3%. Furthermore, the REIT is uniquely positioned as entry barriers to the industry are high and service stations are operated under a long-term alliance agreement. The REIT’s forecasted distribution yield is ~5.9%.
However, investors should be aware that the fund carries a concentration risk as all of its properties are characterised as service stations. Net Tangible Assets (‘NTA’) of the REIT stand at $2 per share and the IPO will list at $2,20, which represents a 10% premium to the NTA. It is not uncommon that REIT’s trade at a discount or premium to their book value, however it is important to understand that REITs tend to move in line with their net asset value As the IPO is valued at $2.20, the potential for capital growth in the medium-term may be limited.
Overall Viva Energy REIT offers profitable exposure to a portfolio of service stations across Australia. Primary hurdles include concentration risk, gearing and valuation, however, the forecasted distribution yield is attractive for investors seeking income.
Company: Viva Energy REIT
ASX Code: VVR
Shares on Offer: 414.1m
Listing Price: $2.20
Market Capitalisation: $1,518m
Listing Date: August 3
Author: Simon Herrmann
Aug 02, 2016
Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.