Viva Energy REIT has a property portfolio of service stations in Australia offering fixed income growth. Ord Minnett initiates coverage of the stock.<\/p>\n
-Long average lease expiries and fixed annual rent reviews By Eva Brocklehurst<\/p>\n Viva Energy REIT ((VVR)) is considered to be a low-risk, defensive stock which is trading on multiples that are in line with its long-leased A-REIT peers. The company has a property portfolio of service stations across metropolitan and regional Australia, valued at $2.2bn, which offer fixed income growth at low management costs.<\/p>\n Brokers note tenant stability is supported by demand for motor vehicle fuel and convenience food. The service stations are operated by Coles Express ((WES)).<\/p>\n The portfolio has a 14.2-year weighted average lease expiry (WALE), with only 1.5% expiring prior to 2026, and fixed annual rent reviews at 3%. These rents are triple net, in that the tenant is responsible for all property repairs and maintenance.<\/p>\n East coast capitals account for 63% of the portfolio by value and 58% by income. More than 95% of the earnings are from properties with fixed annual rent reviews.<\/p>\n Ord Minnett initiates coverage on the stock with an Accumulate rating and $2.30 target, classing Viva Energy as a low-risk A-REIT which pays a sector-average 6.7% distribution yield. The company has guided to 2017 earnings and distributions per security of 13.2c.<\/p>\n The broker envisages potential for growth in convenience stores sales, further acquisitions and capitalisation rate compression.<\/p>\n Both Morgans (Add, $2.53 target) and Deutsche Bank (Buy, $2.72 target) have noted the successful acquisition of properties over 2017 and expect more of the same in 2018.<\/p>\n Deutsche Bank calculates that assuming the trust's interest cost is 3.7%, further acquisitions at the average cap rate of 6.25% should be accretive to earnings. The broker considers the stock cheap versus its peers, based on the distribution yield. Importantly, the revenue stream is locked in for the medium term.<\/p>\n Morgans assumes $50m in acquisitions in 2018 as well as the settlement of the $19.3m Coomera acquisition. The broker points out that the security can gyrate depending on the direction of bond rates yet the distribution yield is attractive compared with term deposit rates.<\/p>\n Potential catalysts include accretive acquisitions, debt refinancing and asset re-rating. The risks centre on higher interest rates, tenant default, and disruptions to petrol-based retailing.<\/p>\n FNArena's database has three Buy ratings for Viva Energy. The consensus target is $2.52, signalling 21.6% upside to the last share price. The distribution yield on 2017 and 2018 estimates is 6.3% and 6.8% respectively.<\/p>\n<\/p>\n
\n-Pays a sector-average 6.7% dividend yield
\n-Potential for growth in acquisitions<\/strong>
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