Elite Commercial REIT has registered its final prospectus with the Monetary Authority of Singapore (MAS), which means that investors in Singapore can now start evaluating whether we should invest in the first REIT to IPO in 2020.
As the first British Pound-denominated REIT to be listed in Singapore, Elite Commercial REIT will whet the appetite of Singapore investors, with 99.0% of its properties leased to the UK government, a total occupancy rate of 100% and a 7.1% distribution yield.
To guide you in your evaluation on whether or not to invest in this £329.1 million ($564.0 million) REIT IPO, here are 10 things you should know.
#1 What Properties Does Elite Commercial REIT Own?
Elite Commercial REIT owns 97 freehold commercial buildings located across the United Kingdom (UK). According to its prospectus, the UK is the second most traded real estate market in the world. Note that 1 of the 97 properties have a remaining lease of 235 years, which makes it virtually freehold.
These are typically small commercial buildings which are between 2 and 4 floors and are somewhat old as they were built in the 1960s, 1970s, 1980s and 1990s.
Source: Elite Commercial REIT prospectus
74.2% of the properties in its initial portfolio is centrally located in city centres, town centres and city suburbs, and 100% of its properties are within a 10-minute walk to the nearest bus stop. While these are statistics that we may not appreciate in Singapore, for larger countries, they may be a differentiating factor.
From what we can tell, this property portfolio was acquired by the Elite Partners Capital from Telereal Trillium, one of UK’s biggest private developers, for £282.2 million ($508 million) in November 2018. It is being injected into the REIT at a value of £319.1 million, or close to $566 million. This represents a $58 million, or 13.1%, increase in value in just over one year.
There were two independent valuers. Knight Frank values the properties at £300.1 million. Colliers values the property portfolio at £319.1 million.
#2 Who Are The Tenants Of Elite Commercial REIT’s Properties?
Uniquely, the REIT provides what it terms a “recession-proof distribution yield”. It does this by leasing over 99.0% of its properties to the Department for Work and Pensions (DWP), the UK government’s largest public service department responsible for welfare, pensions and child maintenance services for approximately 20 million claimants.
The Department for Work and Pensions are counter-cyclical, as the cases handled by the department is highly correlated to unemployment, which usually means a downturn in the economy.
In its prospectus, it states that the Department for Work and Pensions mandates that properties which function as job centres should be easily accessible to the general public via public transportation. This means the location of its properties is typically good.
These properties are also leased out at a long Weighted Average Lease Expiry (WALE) of 8.6 years to the UK government, which has an AA credit rating, on triple net leases. In addition, the leases also have an inbuilt growth from inflation-linked rental escalations.
One key risk remains in the policy shifts or even cost-cutting measures implemented by the UK government.
#3 What Are Triple Net Leases?
In a triple net lease, tenants take on all operating costs of property including maintenance cost, property-related taxes and insurance.
Triple net leases are usually more favourable to landlords as they pass on operating costs to the tenants. This gives landlords more visibility in their rental income.
Typically, triple net leases are applied to properties that are leased out on longer-terms or by master lessees.
#4 What Is The Inbuilt Rental Escalation?
The leases to the UK government have rent reviews every five years, based on the UK Consumer Price Index (CPI). This review is subject to an annual minimum increase of 1.0% and a maximum increase of 5.0%.
This provides unitholders with predictable income growth.
#5 How Will Elite Commercial Trust Grow Its Property Portfolio?
Similar to other REIT Sponsors, the Sponsor of Elite Commercial REIT, has also granted it a right of first refusal for 62 commercial properties located in the UK. These are also primarily long-term leased to the UK government.
In addition, some properties within Elite Commercial REIT’s existing portfolio may have growth potential from enhancement and redevelopment opportunities.
#6 Who Are The Sponsors Of Elite Commercial REIT?
Elite Partners Holdings Pte. Ltd., Ho Lee Group Pte. Ltd. and Sunway RE Capital are the collective sponsors of Elite Commercial REIT.
Elite Partners Holdings is an investment holding firm for Elite Partners Group, which has proven expertise in private equity and REITs.
Elite Commercial REIT’s right of first refusal is on properties owned by Elite UK Commercial Fund II over 62 commercial properties located across the UK, which are also primarily long-term leased to the UK government. In the prospectus, it states that this pipeline of properties was not included in the initial portfolio as Elite UK Commercial Fund II just completed the transaction on 30 December 2019.
Ho Lee Group has extensive experience along the real estate value chain, from construction to industrial and residential development. It was also one of the major sponsors of Viva Industrial Trust during its IPO. Ho Lee Group Trust will own 11.1% of the REIT.
Sunway RE Capital is a wholly-owned subsidiary of Sunway Berhad, one of Malaysia’s largest conglomerate with businesses in property development, property investment and REIT, construction, healthcare, hospitality, leisure, quarry, building materials, and trading and manufacturing. Sunway RE Capital will own 8.9% of the REIT.
#7 What Is The Distribution Yield?
This is a question many REIT investors will ask when investing in a REIT. Based on its unit price of £0.68, Elite Commercial REIT’s distribution yield is estimated to be 7.1%.
#8 Who Are The Largest Unitholders In Elite Commercial REIT?
The estimated holdings of the largest unitholders in Elite Commercial REIT include:
- Ho Lee Group (11.1%)
- Sunway RE Capital Pte. Ltd. (8.9%)
- Kim Seng Holdings (7.3%)
- Sing Lun Industrial (2.2%)
- Tan Kim Seng (2.3%)
- Zeng Fuzu (1.5%)
- Apricot Capital (1.3%)
- LB Venture Capital Pte. Ltd. (1.3%)
- Partner Reinsurnace Asia Pte. Ltd. (1.1%)
Other cornerstone investors include UBS AG, Singapore Branch and UBS AG, Hong Branch, Bank of Singapore Limited, and CIMB Bank Berhad, Singapore Branch. They are all on behalf of their private clients. Collectively, they will own 23.4%.
#9 How Much Is Each Unit In Elite Commercial REIT?
As mentioned, Elite Commercial REIT is the first British Pound-denominated REIT in Singapore. The offering price is £0.68 per unit, this translates to $1.21 per unit, based on an exchange rate of £1.00 to $1.7794.
#10 How To Subscribe For The Elite Commercial REIT IPO?
There are 5,734,300 units offered by way of a public offer in Singapore. This is typically for retail investors to subscribe for. There 108,951,900 units offered by way of an international placement to investors (other than cornerstone units).
We can apply for the IPO via ATMs and internet banking services of OCBC, DBS and UOB. We can apply via mobile banking service of DBS. We can also apply for units via the printed white Singapore Public Offer Units Application form, which is part of the document.
The minimum initial subscription is for 1,000 units. For those who wish to apply for more units, we can do is in multiples of 100.
We need to also note these important dates:
|28 January 2020||Opening date and time for the Singapore Public Offer|
|4 February 2020||Closing date and time for the Singapore Public Offer|
|6 February 2020||Commence trading on a “Ready” basis|
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