Viva Energy REIT
ASX code: VVR
Share price: $2.35
Industry: Real Estate
Forecast 12 month Distribution: 13.9c
Viva Energy REIT is an ASX-listed REIT giving investors exposure to 425 high-quality metropolitan and regional service station assets across Australia. Viva only recently joined the ASX, listing on the market in August last year at $2.20 per security.
The REIT was conceived when Viva Energy, the country’s largest private fuel company, spun off its property assets from its balance sheet. As a result, Viva Energy is the sole tenant of the REIT’s properties, who subsequently sublease the stations to Coles Express. All of the service station sites operate under an alliance agreement between the two, where Coles Express runs the retail operations and Viva Energy supplies the oil products. The stations are run under the Shell brand, which is maintained through a long-term licensing agreement.
Viva’s service station portfolio was recently valued at $2.1b, netting it Net Tangible Assets of $2.07 per security. The lion’s share of the REIT’s portfolio is weighted towards the Eastern seaboard, with 80% of the portfolio’s rental income attributed to New South Wales, Victoria and Queensland. Furthermore, the split of the portfolio between metropolitan and regional stations is approximately 75% and 25%, respectively.
Viva has a number of lucrative investment attributes, including a triple lease structure, which considerably reduces its capital expenditure obligations and indemnity protection from Viva Energy, in the event of potential environmental damage. It also has an incredibly long-dated WALE (weighted average lease expiry) just shy of 15 years with 100% occupancy, combined with contracted rental increases of 3% p.a. As previously mentioned, whilst only having a sole-tenant and sub-tenant, is helped by the fact that they are the largest supplier of fuel in the country and one of the largest retailers in the country. Viva Energy has also maintained a 40% holding in the REIT after the spin-off.
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The trust is also undertaking the acquisition of a further four service stations in NSW, QLD and the NT for $26.2m. These acquisitions were earmarked in the prospectus and will likely push the company’s gearing to the middle of management’s guided range of 35-45%. Pleasingly, after settlement of the transaction, Viva will still have scope for further acquisitions.
Viva Energy REIT offers a potential investor exposure to a long WALE portfolio of assets with high certainty of revenue, contracted rental increases that are currently well above inflation and an attractive yield combined with the potential for further growth through incremental acquisitions. The REIT is not without its own risks, however, with service station industry growth forecast at a moderate 0-2% to 2021 and the concentration risk of a single, yet very well funded, tenant. At current prices, Viva offers a 12-month forward yield of almost 6%, which we believe represents good value to an income-focused investor.
Originally published in The Australian on Tuesday, 15th May 2017.