Viva Industrial Trust downgraded by Maybank KimEng despite ‘win-win’ merger

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Maybank KimEng downgraded Viva Industrial Trust to Hold from Buy despite its planned “win-win” merger with ESR-REIT.

“We are positive on Viva’s proposed merger with ESR-REIT as the deal would be value-accretive to unitholders,” the brokerage said in a note on Monday, noting it would create the fourth-largest industrial Singapore REIT, with a combined assets under management of S$3.0 billion.

But it cut its target price to S$0.96 from S$1.05, saying “We expect Viva’s share price to be range bound and capped at its S$0.96 offer
value until completion of the deal.”

It noted the deal was priced at a 26 percent premium to Viva’s end-March net asset value of S$0.76, and 8 percent above its last close.

However, it said the execution and deal-related risks were low.

“We see clear benefits from the deal from scale of an enlarged portfolio, increased market liquidity, and lower borrowing costs lifting distributions per unit over the longer term,” it said. “Post-merger, the portfolio quality of the enlarged trust is expected to be strengthened,
from the contribution of Viva’s business park assets and the AEI know-how of its management complimenting ESR-REIT’s growing high-specs push.”

On the deal’s expected completion in the third quarter of this year, Viva will be delisted, it noted.

Viva Industrial Trust last traded at S$0.90.