1H18 result overview
Viva Energy REIT (VVR) announced 1H18 distributable earnings of A$50.6m/6.99c (vs A$47m/6.8c in the previous corresponding period). The uplift was driven by increased rental income from annual fixed rate increases as well as income from new acquisitions.
VVR paid a 1H distribution of 6.99c on 10 August (100% payout ratio). Operating cash flow was A$39.6m. NTA is A$2.20 (or A$2.13 post the payment of the 1H distribution). Gearing stands at 32.5% (versus target range of 35-45%). The Interest Coverage Ratio is 5.6x.
FY18 guidance unchanged
FY18 guidance was reiterated and comprises distributable EPS of 13.81-13.91c (+3.75% on the previous corresponding period) which includes A$30m of assumed acquisitions. We make no changes to our forecasts with our EPS at 13.96c. We expect movement around 2H earnings will depend on the timing of settlements for new acquisitions.
Revaluations on the portfolio will likely be announced early CY19 (one-third of properties are independently revalued annually).
Debt capacity for potential acquisitions
VVR recently announced 6 new acquisitions for A$62.1m (A$22.7m settled with the balance to settle 2HCY18). The acquisitions were debt funded via existing facilities. We estimate VVR has around A$120m of available undrawn debt so there is capacity for any future acquisitions.
During the 1H18, VVR also extended, increased and restructured the debt (slightly improved pricing on bank debt) with the weighted average debt term now around 4 years. VVR also now has a A$60m Institutional Term Loan (two domestic institutions) with terms of 8 and 10 years. The next expiry (A$60m) is due in June 2020.
VVR's portfolio is currently valued at +A$2.3bn (comprising 444 service stations with +75% in metro areas). The portfolio has a WACR of 5.8% and weighted average lease expiry of approximately 13 years. Around 98% of all leases have 3% per annum fixed increases in rent and are triple net in nature.
We note the security price is likely to move around depending on the direction of bond rates. However, VVR's distribution yield remains attractive compared to term deposit rates (FY18 distribution yield of 6.5% paid half-yearly).
Potential catalysts for VVR include accretive acquisitions. Risks relate to higher interest rates, tenant default/non-renewal (first review 2026); and disruption to petrol-based retailing which may impact key tenants.
We retain our Add recommendation.
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Disclaimer(s): Analyst owns shares.
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