Viva Industrial Trust Completes A $122.7 Million Acquisition: Should Its Investors Rejoices?

Viva Industrial Trust (SGX: T8B), a stapled trust with a focus on business parks and industrial properties in Singapore, announced yesterday that it has completed a major acquisition of two industrial properties for S$122.7 million in total.

What should investors make of the acquisition? Let’s find out.

The purchase

The two properties – one at 19 Tai Seng Avenue and the other at 11 Ubi Road 1 – have an aggregate gross floor area of over 370,000 square feet. Viva Industrial Trust had purchased both properties from their current occupants under a purchase-and–lease-back agreement.

The Tai Seng Property was bought from Home-Fix D.I.Y. Pte Ltd and the vendor has agreed to a master lease for the property for the next 10 years. Meanwhile, Viva Industrial Trust had purchased the Ubi property from Meiban Investment Pte Ltd and it will be partially leased back to Meiban for the next 10 years.

Both lease agreements have positive annual rental revisions of 1.5% starting from the third-year of the lease term.

The positives

According to Viva Industrial Trust’s manager, the two acquisitions will help diversify the trust’s portfolio in terms of both asset type and tenant base.

Moreover, the acquisitions have improved the weighted average portfolio occupancy of Viva Industrial Trust (by 3.2 percentage points to 84%) as well as lengthened the weighted average lease expiry (to four years), thereby providing more stability to the trust’s rental profile.

The payment

To help fund the acquisitions, Viva Industrial Trust has obtained a S$73.0 million five year term loan from financier Hong Leong Finance Limited (SGX: S41).

The remaining sums would be funded through (1) a non-renounceable preferential offering of 101 million stapled securities by Viva Industrial Trust that was announced only on 18 November 2015 and (2) a private placement of 52 million new stapled securities by the trust that launched and closed on 18 November as well. Investors that are part of the private placement included the two vendors of the acquisitions, namely, Home-Fix D.I.Y. and Meiban Investment.

The unknown

It’s interesting to note from Viva Industrial Trust’s announcement that there isn’t much discussion regarding the impact the acquisitions would have on the distribution per unit (DPU) of the trust. Yet, changes to a trust’s DPU can be considered as one of the most important factors to an investor.

The new securities to be issued from the preferential offering and private placement work out to be more than 20% of Viva Industrial Trust’s total number of stapled securities that existed as of 30 September 2015. The new units’ effects on the trust’s DPU might thus be significant. Unfortunately, existing investors in Viva Industrial Trust would have to wait to see if the deal is truly beneficial to them.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim does not own any companies mentioned above.