Viva Industrial Trust (VIT) and ESR-REIT announced that their managers are discussing a proposed merger effected through the acquisition by ESR-REIT of all the units of VIT. The consideration of VIT’s units is to be satisfied by the issue of new ESR-REIT units. The share swap ratio has yet to be announced.

After the trading halt was lifted, VIT closed at S$0.95 (+1.60% above its last unit price before the trading halt) while ESR-REIT closed flat at S$0.57. The combination of VIT’s and ESR-REIT’s assets will move VIT from the 9th largest industrial S-REIT by asset portfolio size, to the 4th largest.

The asset diversification of the enlarged portfolio would mean that the merged entity is less affected by single instances of tenant defaults and events such as VIT’s fall-off in income support.

Another benefit is the potential to refinance at lower costs, and access to a greater pool of financing options. The third is higher liquidity as well as likely inclusion in the investible universe for more institutional funds.

Pending more concrete details on the proposed acquisition, we maintain HOLD on VIT with a fair value of S$0.93.

Source: OCBC Research - 30 Jan 2018