Viva Energy REIT surged 16 per cent on its first day of trading, reflecting strong investor appetite for the unique company that houses 425 petrol retail outlets throughout Australia.

The trust closed at $2.56 per unit yesterday, jumping from its IPO price of $2.20 and pushing its market cap to near $1.77 billion. It listed with a market cap of about $1.5bn.

The stellar performance, despite the sharemarket’s biggest sell-off in a month, was mainly driven by investors rushing to increase their exposure after being squeezed in the IPO allocation process, according to the managing director of Folkestone Maxim Asset Management, Winston Sammut.

“Most the institutions and individual investors that put in for an allocation only got about 10 per cent of what they wanted,” he said. “So you’ve got a lot of institutions and individual investors who want to increase their exposure. These are the ones that are buying.”

It might take a few days for the price to settle down, Mr Sammut added, but there is no doubt that the trust’s forecast distribution yield of 5.94 per cent was attractive to investors at a time of low interest rates and weak economic growth.

The search for yield could also drive demand for some pending IPOs, such as the Charter Hall Long WALE REIT and Propertylink Group.

Viva Energy REIT already has wide geographic diversification in its portfolio of Coles Express and Shell-branded service stations, valued at $2.1bn, and could expand as it scrip has surged.

The trust was spun out of Viva Energy, a firm created by Vitol’s 2014 purchase of Shell’s downstream business in Australia, which retains 40 per cent of the company post-IPO after raising $911 million in one of the biggest floats this year.

Resolution Capital’s senior portfolio manager Andrew Parsons noted all of the trust’s properties were leased to parent Viva Energy, with an average lease term of 15 years on a triple net basis, which meant all property expenses were paid by the tenant, providing another positive for investors.

“Although externally managed, it could be considered external management ‘lite’ with the manager remunerated on a cost pass-through basis, thus providing better alignment than traditional externally managed vehicles,” Mr Parsons said in a recent report.

The listing, the biggest in the A-REIT space this year and the only one owning petrol stations, has attracted a heavyweight roster of cornerstone investors in an offer process jointly led by Deutsche Bank and Merrill Lynch.

Margaret Kennedy, the new trust’s managing director who has worked in the oil sector for 25 years, has said that petrol stations are a strong alternative asset class.

Mr Sammut said the trust may need to recycle some assets.

Extracted in full from The Australian.

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