Elite Commercial REIT IPO - Now Open!

The IPO for Elite Commercial REIT ('Elite CREIT') is finally open for application!

The REIT looking to raise gross proceeds of 130.9m by offering 114,686,200 units at £0.68 (SGD 1.21) each, of which 5,734,300 units available for the public offering. The timeline of the IPO is set out as below:

Timeline
28 Jan 2020 @ 9pm - IPO open for application
4 Feb 2020 @ 12pm - IPO application closure
5 Feb 2020 - Balloting of application for IPO
6 Feb 2020 @ 2pm - Trading commences on SGX market

You may access the prospectus from MAS OPERA via the link below.

Elite Commercial REIT - Final Prospectus/Product Highlights

I will do a recap based on my previous post, then expand on it in this article based on new info available.

Previous post: Elite Commercial REIT IPO - Early Look

Updated Summary / Recap

• Pure-play UK-focused REIT, focusing on office assets. 
• Market Cap of 230m at launch.
• Portfolio consists of 97 freehold properties all located in the UK, with 100% occupancy and >99% leased to the UK Government.
• Properties all let on co-terminus, fully repairing and insuring (triple net) leases.
• Projected Yield of 7.1% for FY2020 and 7.2% for FY2021.
• The yield of 7.1% for FY 2020 and 7.2% for FY 2021 is under assumption which the manager fees are in units instead of for FY2020 and FY2021. If manager fees are in 100% cash instead, the yield will be 6.3% and 6.4% respectively.
• Management fee:  

• Base fee of 10% of distributable income per annum.

• Performance fee of 25% difference in DPU between the present financial year and the preceding financial year, multiplied by weighted average numbers of issued units in the financial year. This is only payable if there is growth. 

• Sponsors will hold ~19% holdings collectively.

Pricing of IPO / Valuation
With the pricing out at £0.68 (SGD 1.21), this puts the P/B at ~1.03 based on the valuation of the portfolio at £319.1m. The P/B then compares favourably with commercial REITs such as CapitaCom Trust and Mapletree Commercial Trust. But do note those are Blue-Chip REITs -  the market seems happy to pay premium for stable large-cap and blue-chip REITs.

Of note is when the portfolio was initially acquired on Nov 2018, it was then valued at £282.15m due to the ongoing Brexit situation, which would have given it a P/B of ~1.16.

See:
Elite Partners Capital Acquires 97 Freehold Commercial Properties in U.K. Worth £282.15 Million
Growth
The leases to the UK Goverment has a built-in rental escalation every 5 years based on UK Consumer Price Index (CPI). This is subject to an increase between 1% - 5% annually, giving predictable growth to distributable income.

Beyond this? I see a need for the REIT to make property acquisition.

Gearing / Likelihood of Rights Issue and Placement
The gearing ratio is at 33.7% on launch. Given the small size of this REIT and the gearing limit of 45%, it does not leave much room to make acquisition by taking up more debt alone.

As such, I see high likelihood of rights issue and/or placement in the future.

Forex
The public offering price of SGD1.21 puts the forex rate at 1.7794.

Previously I mentioned Forex opportunity and risk playing a big part in evaluating whether it will be a good idea for one to participate.

My personal opinion remain that forex is still a big uncertainty, but once again, different investors may see otherwise.

Articles by fellow financial blogs
Other financial bloggers have also written articles on this IPO and you can check them out here:

• Seedly - "Elite Commercial REIT: What Investors Need to Know about this IPO"
• Financial Horse - "Elite Commercial REIT IPO Review: 7.1% yield backed by the UK Government – too good to pass up?"
• InvestmentMoats - "Some Info I looked into on Elite Commercial REIT"
• Probutterfly - "First Impressions of Elite Commercial REIT"
• Dr Wealth - "Elite REIT IPO: Do not buy yet!"
• The Smart Investor - "3 Important Aspects of Elite Commercial REIT You Should Know"
• Singapore IPOs - "Elite Commercial REIT"

What I like about this REIT

• The management fee is aligned to the performance and hence the interest of the REIT unitholders
• Responsibility for repairs is transferred to the tenants.
• Solid tenancy - Tenancy virtually taken up by almost 100% UK Government.
• Built-in rental escalations which will offer 
• Some safety factor exercised into tenant break options scenario to bring up the yield.
• Based on P/B of 1.03, the IPO is actually reasonably priced.
• The initial yield is decent regardless if the manager opt to receive their fees in units or cash.

Some of my concerns:

• Forex - My opinion remain unchanged that forex is too much of an uncertainty. This is my biggest concern of the lot by miles. Investors who are bullish on GBP/SGD will be well-rewarded if this currency pairing goes up.

Will I buy it?

Given that the Forex uncertainty is a dealbreaker for me in spite of the positives. I will have to give it a miss at IPO. However, if market pessimism has reduced the price adequately, I may very well take another look at it.

Elite Commercial REIT IPO - Early look

Note 2020-01-30 - As I have written a new article on Elite Commercial REIT largely superseding this article, please read this in conjunction with the newer article.

Elite Commercial REIT IPO - Now Open!

Elite Commercial REIT (Elite CREIT) is likely to launch IPO next week. This will be the first pure-play UK-focused REIT to list in Singapore Exchange.

Update 2019-01-19 - They have only filed preliminary prospectus so far based on The Edge Singapore's 17th Jan Article here. I've updated with a little bit more info from said article, indicated in blue. I intend to write and publish a new article after studying the confirmed prospectus.

What we know so far (based on The Edge Singapore's report):

• Valuation of its portfolio is around GBP 320m. This is now indicated GBP 317.1m.
• Its portfolio consists of 97 freehold properties all located in the UK. 
• Of these, 25% of the properties (by rental income) are located in London (First tier city), with the remainder in second tier and third tier cities across UK. 
• A search on the web gives some clarity (unable to verify this better on my end) on the definition of the city tiers (link here).
• All of the properties are occupied by UK government.
• Properties all let on co-terminus, fully repairing and insuring (triple net) leases.
• UK's sovereignty rating is Aa2, the third-highest Moody's rating (see the link here to Wikipedia article for Moody's rating).
• Forecast and Projected net property income of GBP 22.654m for FY 2020 and 2021.
• 100% distribution from listing date till end of FY2021, and minimum 90% distribution subsequently.
• Initial yield expected to be between 6% - 7%.
• The management fee will consist of base fee of 10% of distributable income per annum and a performance fee element.
• In additional to the management base fee, there is also a performance fee of 25% difference in DPU between the present financial year and the preceding financial year, multiplied by weighted average numbers of issued units in the financial year. This is only payable if the difference is positive (i.e. given only if the DPU is growing).
• Major unitholders pre-IPO are Ho Lee Group, Sunway Group and Kim Seng Holdings. Other unitholders include Apricot Capital, Lian Beng and Partner Reinsurance, a unit of Exor 52.99% owned by the descendants of Giovanni Agnelli (FIAT’s founder).

Author's Note: One may be familiar with Apricot Capital and Lian Beng as Sembawang Shopping Centre was sold by Capitamall Trust to them.

Some report can be accessed via The Edge Singapore, Business Times and REITsweek:

• The Edge Singapore (7th Jan Article)
• The Edge Singapore (17th Jan Article)
• Business Times (Paywalled)
• REITsweek (Paywalled)

Some discussions can also be found on Hardwarezone forum and ShareJunction forum:

• Hardwarezone forums
• ShareJunction forums

While there is little information without the finalised prospectus, things I am paying more attention to before I decide whether to subscribe:

• Forex opportunity/risk (GBP-to-SGD)
• Do I see more upside or downside for this? If so, how much?
• This also means the need to pay attention to UK news that could affect this in the longer term.
• Gearing
• How much will be the REIT's confirmed gearing at launch of IPO? As of 17th January 2019, this is expected to be 32%.
• Gearing being too high means the need to raise capital via placements or rights issue instead of taking up more debt.
• The valuation
• How is the IPO priced relative to its valuation
• How is it then priced in comparison to its peers listed in SGX?
• This is also instrumental in evaluating the upside and downside in conjunction with Forex opportunity/risk.
• The REIT's strategy for further growth to its yield and valuations?
• After evaluating the above, if it meet my criteria for buying in?

What I like about Elite Commercial REIT

• The management fee is aligned to the performance and hence the interest of the REIT
• Responsibility for repairs is transferred to the tenants.
• Tenancy virtually taken up by almost 100% UK Government.
• Some safety factor exercised into tenant break options scenario to bring up the yield.

What I dislike about it:

• Forex uncertainty - For now, I feel that GBP-SGD rates have at best, similar chances of downside, sideways and upside movement. Potential investors may see differently.

 Readers, what do you think of this upcoming IPO? Will you be planning to subscribe?

What did I do with my savings plan in the end?

A long time ago, I wrote a couple of posts on thinking if I should be cancelling my savings plan on the belief that investing the money that I can get back, as well as the remaining premiums to be paid up till maturity, will pay off greater returns.

These received substantial comments - a mixture of advice, encouragement and critique.

You can access the articles here if you wish:

• Cancel my savings plan in pursuit of greater investment opportunities?
• Cancel my savings plan in pursuit of greater investment opportunities? (2)

Today, I will revisit as I have gotten some more recent questions. I think it will also be a great idea to write on this and then update the older posts so as to offer closures. Of course, I will be more than happy to continue entertaining any future questions or comments.

Okay, here we go!

Daniel asked:

Hi, did you surrender this policy eventually?

Anon asked:

"Just came across your post about this and am currently in the same position you were- should i surrender/sell policy to third party to take the loss and Invest it myself? Or just let it ride..

I chose a 5 year payment for myself but quite a big annual premium with 2 more to go.

Could I ask where you stand on this now a year later? And why did you choose a 20 year payment instead of 5 or 10 years of premiums?"

I have commented to follow up on the post, then the idea of putting these in writing gave an opportunity to expand on my answers when compared to the original comments.

On trying to sell the policy but not succeeding, and then mulling choice between surrender or keep
Initially, I tried to get a quote for my policy, but I did not receive any replies. This boils down to the choice of surrendering or keeping.

Overall, with how my investing journey on the stock market was lacklustre for the past 18 months, it could be good to have a backup in case of investing FUBAR.

In the end, I have chosen to let it ride, and probably intend to leave it till maturity and beyond. But that's not all I had done to the plan.

Changing the rate of premium payment
But what else have I done?

I changed my premiums payment from monthly payment to yearly.

I am not so sure about the other savings plan out there, but in my case, one has to pay more for monthly premium charges - close to 2% - presumably some sort of administrative charges - which does not contribute to any returns. If you are giving your premiums monthly for other savings plan, do check with your financial planner.

Basically whatever returns I am meant to get for each year gets reduced 2% p.a if I kept the monthly premium up.

The length of the plan till maturity
The choice of 20 years instead of 5 or 10 years was a bit of an uneducated choice. I started on this plan before I started educating myself financially - primarily failing to appreciate how to better exploit the effect of compounding interest and not yet learning about other investment mediums.

A long time ago, I wrote a couple short posts on the effects of compounding interests:

• Effect of Compounding on Principle Amount (and Ongoing Fund Injection)
• Effect of Compounding Part 2 - Early Repayment for a HDB Housing Loan

If I were to go back to the decision point, I would want to change to a 5 year plan (t then I can just start another plan if I wanted to).

Let's run some numbers, shall we? We shall explore 2 conditions for the 5-year, 10-year and 20-year plan:

• Same amount of yearly premiums (pay 2400 yearly till maturity)
• Same amount of total premiums paid, spread over the period of the plan (48000 total sum)

I'm assuming the following for simplicity (in reality, where got so good, right? haha):

• 3% annual returns before compounding 
• Continuing to hold until policy year 30 without withdrawals or surrendering.

Scenario 1 - Same amount of yearly premium (2400 per year) until maturity

The first scenario, minus looking in-depth into the compounding effect, was what I had in mind when I bought the plan, looking at only enforcing myself saving up via the plan.

Based on the above, the Compounded Annual Growth Rate (CAGR) of this at the 30th policy year will be:

• 4.18% for the 5-year plan
• 3.65% for the 10-year plan
• 2.69% for the 20-year plan

Unsurprisingly, the CAGR of the 20-year plan and, to a lesser extent, the 10-year plan, falls behind the 5-year plan; the premiums given in the latter years have had less time to work their magic. The only reason why you have saved more via the plan is that it is being enforced. Whether that accomplishes your intended objective, that is another question.

But what about the second scenario?

Scenario 2 - Same amount of total premium (48000), spread over the period of the plan

The second scenario - that is, same amount of total premium, was what I failed to consider at the time when I decided to buy my savings plan. The CAGR from the first example applies, but the principal sum for the 5-year plan, and to a lesser extent, the 10-year plan is now working much harder than the 20-year plan as the total premium was given earlier.

So Anon, if you are reading this, while it is up to your discretion based on your preference or risk appetite, I feel it should be fine to keep the savings plan. For your own info-gathering though, it is also no harm in trying to get a quote for the sale of your savings plan. You may garner some interest as it is more than half-way through your plan anyway, unlike myself.

Readers, do you have any savings plan or any experience to share regarding it? What are your thoughts about your savings plan?

Thanks for reading.

Portfolio Update 4Q2019 / The Year-End Review

In the blink of an eye, 2019 4th quarter has come to an end and it's time to usher in the year 2020. Setting new resolutions to meet for the year or years ahead, so as to meet targets ranging anywhere, in varying degree of magnitude. It could be investment goals, academic goals or just some other personal goals to become a better self or to fulfill one's bucket list.

For my blog, you know what each end of the quarter means - It's time for another portfolio update!

Portfolio 4Q2019

Notes
1 - Based on EUR:SGD conversion of 1.5095 to Dec 31st closing price of EUR 0.540
2 - Based on USD:SGD conversion of 1.3446 to Dec 31st closing price of USD 0.965
3 - Alita Resources is previously known as Alliance Minerals Assets Limited. As of 3Q2019, I have decided to write-off Alita Resources due to high likelihood of being a total loss. This may, however remote, change if a miracle happens.

No new transactions has taken place in comparison to the 7th October 2019 update, however there is *a hairline* appreciation in value.

The Year In Review
I have decided to break reviewing the year's events and targets down to "the good, the bad and the ugly". This covers both the portfolio and other goals I had planned for 2019.

You may want to read last year's review as it holds relevance to the rest of this post.

The Good

• Satisfactory performance from the income portfolio. The decision to try my luck for excess rights share and triple my holdings in Cromwell European REIT towards the end of last year was the right call and is the main star to thank here. 
• Managing to add position in shares for Prime REIT and Lendlease GCREIT, albeit tiny positions, as well as channeling any dividends/distributions earned to compound my gains.
• In position to take slight advantage of foreseen rights issue for Prime US REIT and Lendlease GCREIT (By the way, I hope you have already send your Form W-8 BEN and your opting of receiving distributions in USD or SGD).
• The change in employment in June 2019 has afforded me more focus and learning opportunities
• Completing my traditional marriage now allows me to focus on future plannings, beginning with saving $30,000 of emergency funds.
• Finally being able to pay off remaining borrowings for university tuition fees.

The Bad

• Slightly overpaying for Lendlease GCREIT
• Not being able to invest at a desired pace or invest with a larger lump sum - commission fee is a bummer. I am a fan of gauging my dividends based off Yield At Cost instead of just Dividend Yield.
• Not managing to add positions to some shortlisted semiconductor stocks before they rallied. These stocks have not hit my target price to consider recycling my funds into such positions. Oh wells.
• Not having even bigger positions in the REITs to get more rights issues or to make the most of commission fees should I decide to sell.
• The plan to save up emergency funds as a priority goal will means there is little savings to channel towards the investing warchest unless I can substantially increase my savings by other means, be it further squeezing of expenses or side hustles.
• I also got to admit, for the whole year, my contents were not to scratch both in frequency and depth. I was also struggling to find the energy to write. 2019 while eventful, was also a stressful year. With the change in employment and traditional wedding completed, I think my creative energy should start to come back.
• I fell sick the last few days - hit with a fever, cough and sore throat. :( Stay well, guys!

The Ugly 
The only real smear on this year has been the total loss of share values for Alita Resources (short of a miracle). Pretty funny, when I was once sitting on it with 2-bagger paper profit.

Alongside dozens of other shareholders, we are looking into possible actions for both the possible breaches of duties and regulations by the ex-directors, as well as if it is possible to prevent the transference of shares to Liatam for nil consideration.

It is not just about possibly salvaging the situation, but the principle itself: Even if we can't salvage anything, not taking actions as a shareholder for wrongdoings (and I stress, WHEN YOU HAVE THE POWER TO DO SO) just sets a precedent for other crooks to try similar monkey business with shareholders' hard-earned money.

Well, that wraps up 2019.

Going forward into 2020
First, I hope my feeling of energy coming back is genuine and propel me to write better. I still owe myself the promise of doing a huge Alita Resources write-up. I think this will benefit in a lot of ways:

• Understanding investing into the lithium sector
• Understanding early signs of any red flags
• Understanding how the company fell apart
• Updating on possible salvaging actions

Next, I have decided to give making my blog shows the same between mobile and desktop format, as it seemed to look better on one of the financial blogger's site I visited recently. Mobile site, while looking cleaner, I also feel readers also miss out on other areas to explore.  Change of plans - it looks bad. Probs need to be optimised further.

On the investment forefront, I suspect there will be little (if any) adding to positions or recycling of funds. Off the top of my head, the most likely adding of positions will be to existing REIT positions when rights issue comes about. I am also keen to add position to some blue-chips as well. Having said all that, I hold this does not happen too soon - I need more funds! Hahaha.

Alright, with that, I would like to thank you all for reading, and wishing you a Happy New Year - May 2020 be a good or better year!