Viva Industrial Trust

Viva Industrial Trust ("VIT") is offering 211,736,000 stapled securities at $0.78 each. The prospectus is here. The IPO will close on 31 Oct 2013 at 12pm. The placement tranche will be for 190.562m shares and the public tranche of 21.174m shares. In addition, a Chinese property tycoon invested S$200m, Ho Lee Group and Kim Seng Holdings take up $75m and United Engineers $23.2m. The Trust will have a market cap of $771.7m post IPO. 

Business

VIT is a Singapore-focused industrial Trust, similar to the SoilBuild Business Space REIT.

Properties (Initial Portfolio)

The majority of the asset type is business park and has a portfolio value of S$743m. The 3 properties are UE BizHub East, Technopark@Chai Chee and Mauser Singapore. Below is the graphical view of the break down by asset type.

Potential Acquisition Pipeline

While the acquisition pipeline looks "interesting", do note that it is only the right of first refusal that was being granted to VIT. In other words, VIT will still have to buy at market value at the point in time.

Peers

The listed peers are trading at average of 1.08x book and 7.5% yield. The NAV per share based on the pro-forma balance sheet on page 58 is $0.74 and that translate into a price to book of 1.05x. The Trust is projecting yields of 8.8% for FY2014 and 9.0% for FY2015 which makes it look more attractive relative to its peers.

Distribution

The first distribution will be for the period from Listing Date to 31 Dec 2013 and will be paid before 31 March 2014.

What I like about VIT

• Experienced management. Wilson Ang was previously the Managing Director and CEO of Cambridge Industrial Trust from 2005 to 2009
• Attractive projected yields of 8.8% for FY2014 and 9.0% for FY2015 vis-a-vis its peers
• Strong acquisition pipeline where it has a right of first refusal

My Concerns

• Remaining lease of 45 years (which is why Industrial REITs need to provide a higher yield vis-a-vis a retail REIT with longer leasehold)
• Rental are "artificially" inflated by the rental support from Sponsors
• Over-saturated Industrial Business trust market. 
• Selling a "lousy asset" like Technopark@Chai Chee at high valuation even though the lease remaining is only 18 years.

Fair Value

Assuming we take the most conservative view where it will price between 0.94x PB to 1.03x PB, the fair value range will be 70c to 77c. 

If it trade between yields of 7.5% to 8.7%, the trading range will be between 79c to 89c. My gut feel is that it will trade between 75c to 82c on debut.

My Chilli Ratings

Given that the most recent Soilbuild Biz REIT is still below its IPO price and the deluge of industrial trust, it is inevitable that VIT has to price itself on the lower end to provide the yields which cornerstone investors will invest. I also do not like the 'rental support' concept as the sellers are probably conflicted. In other words, they are selling at a higher price and then provide the cashflows back as rental support. 

Don't expect too much fireworks as this is a yield product. I will give it a one chilli rating and probably give it a miss as well.