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:
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:
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.
No comments:
Post a Comment