Elite Commercial REIT IPO: What Investors Should Know (Includes Step-By-Step Guide to Apply for IPO)
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Elite Commercial REIT IPO: What Investors Should Know (Includes Step-By-Step Guide to Apply for IPO)

Sudhan P
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The Singapore real estate investment trust (REIT) market could see a new kid on its block.

Elite Commercial REIT filed its final prospectus on 28 January, and it’s poised to become the first REIT initial public offering (IPO) in 2020. It is also set to be the first REIT denominated in British pounds to list here.

Here’s what we know about Elite Commercial REIT’s IPO.


TL;DR: Elite Commercial REIT’s IPO Deets

Elite-Commercial-REIT-IPO

Here are some details about Elite Commercial REIT:

  • Elite Commercial REIT is a commercial REIT with a focus on office assets in the UK.
  • The REIT’s initial portfolio will contain 97 commercial properties located across the country.
  • More than 99% of the portfolio is leased out to the UK Government via The Secretary of State for Housing, Communities and Local Government.
  • The portfolio has a 100% occupancy.
  • The offer price will be £0.68 (S$1.21) per unit, and the closing date and time for the IPO is 4 February 2020 at 12pm.
  • Elite Commercial REIT’s distribution yield for 2020 stands at 7.1% and that of 2021 is at 7.2%.
  • Growth for the REIT can come from rental increases and acquisitions.

What’s Elite Commercial REIT About? 

Elite Commercial REIT is a commercial REIT with a focus on office assets in the UK. If listed, Elite Commercial REIT will become the first UK-focused Singapore REIT.

The REIT’s initial portfolio will contain 97 commercial properties located across the country, and the geographical spread of the properties can be seen below:

Elite Commercial REIT portfolio final
Source: Elite Commercial REIT IPO prospectus

The following table shows the breakdown of properties by gross rental income for the forecast year 2020 (1 January 2020 to 31 December 2020):

RegionNumber of propertiesGross rental income for forecast year 2020
(£’Million)
Percentage of gross rental income for forecast year 2020
London and South East164.720.3%
South West92.510.5%
Midlands91.66.8%
Yorkshire and Humber40.31.2%
North East91.25.2%
North West165.322.9%
Scotland205.925.4%
Wales141.87.7%
Total9723.3100.0%

Of the 97 buildings, 96 of them are freehold in nature while the remaining is on a long leasehold tenure expiring on 19 May 2255.

The portfolio has a valuation of around £319.1 million, as of 31 August 2019. 

More than 99% of the portfolio is leased out to the UK Government via The Secretary of State for Housing, Communities and Local Government.

Those properties are mainly occupied by the Department of Work and Pensions, which is the UK government’s largest public service department, responsible for crucial welfare, pensions and child maintenance services.

The portfolio of 97 properties has a 100% occupancy.

Timeline of Elite Commercial REIT IPO

Elite Commercial REIT is looking to raise gross proceeds of around £130.9 million from the IPO.

The following shows the timeline of Elite Commercial REIT IPO:

Important events for Elite Commercial REIT IPOTime and date
Offering price£0.68 (S$1.21) per unit
Units offered114,686,200
(of which 5,734,300 units is for the Singapore public)
Opening time and date of IPO28 January 2020, 9pm
Closing time and date of IPO4 February 2020, 12pm
Balloting of applications for IPO5 February 2020
Commence trading6 February 2020, 2pm

The minimum initial subscription is for 1,000 units.

The refunding of excess application monies back to unsuccessful or partially successful applicants will take place on 5 February 2020.

Step-By-Step Guide to Subscribe to Elite Commercial REIT IPO

For a start, an investor needs to open a CPD account with SGX to start investing.

After which, one can either apply for the IPO through the ATM or through internet banking. DBS/POSB users can also subscribe to the IPO using mobile banking as well.

Subscribing to Elite Commercial REIT IPO Through Internet Banking

Step 1: Log in to your internet banking account. You can apply for IPOs through internet banking platforms of DBS, OCBC and UOB.

Step 2: After logging in to your internet banking account, head over to the “Invest” or “Investments” tab, depending on the banking platforms which you are on.

Step 3: For OCBC users, simply select “Initial Public Offering”. For DBS/POSB users, select “Electronic Shares Application (ESA)”.

Step 4: You should be able to see “Elite” after answering a few questions.

Elite Commercial REIT IPO DBS Bank
Application page for DBS/POSB internet banking users

Do note that there will be a charge of $2 per application.

If your application is unsuccessful or if your orders are partially filled, the remaining amount will be returned to your savings account.

Alternatively, you can head over to an ATM to subscribe to the IPO.

Subscribing to Elite Commercial REIT IPO Through the ATM

Assuming that you already have a CDP account with SGX, head over to an ATM (usually DBS/ POSB given that they have the widest network).

Subscribe to the IPO through the ATM by selecting Electronic Shares Application before the closing date and time.

Application fee of $2 applies.

If your application is unsuccessful or if your orders are partially filled, the remaining amount will be returned to your savings account.

Distribution Details

Elite Commercial REIT plans to distribute 100% of its annual distributable income for the period from the listing date to the end of the projection year 2021 (1 January 2021 to 31 December 2021).

After that, Elite Commercial REIT will distribute at least 90% of its annual distributable income on a semi-annual basis.

Elite Commercial REIT’s distribution yield for 2020 is at 7.1% while that of 2021 is at 7.2%.

The first distribution, which will be for the period from the listing date to 30 June 2020, will be paid on or before 30 September 2020.

All distributions will be declared in British pounds. Each unitholder will receive distributions in Singapore dollars equivalent of the British pounds distribution declared, unless the unitholder chooses otherwise.

 Forecast year 2020Projection year 2021
Distribution per unit (pence)4.834.88
Distribution per unit (Singapore cents)8.508.58
Offering price (£)0.680.68
Distribution yield (%)7.17.2

Key Investment Highlights of Elite Commercial REIT

Since almost 100% of Elite Commercial REIT’s portfolio is leased to the UK government, there’s almost no chance of default, and that provides stability to the REIT’s rental income. The UK government is rated AA and Aa2 by S&P and Moody’s, respectively.

Elite Commercial REIT’s portfolio has a net property income yield of 7.1%, which is around 6% above the UK government 10-year bond yield, despite being backed by the same sovereign credit.

More than 99% of the Elite Commercial REIT’s gross rental income is derived from full repairing and insuring (triple net) leases to the UK government with a weighted average lease expiry (WALE) of around 8.6 years.

Under a fully repairing and insuring (triple net) lease, the responsibility for the repair of the external, internal, and structural areas of a property is with the tenant.

On top of the long WALE, another attractive feature of the portfolio is that the leases have in-built rental escalations every five years based on the UK consumer price index (CPI), which is a measure of inflation.

The leases are subject to an annual increase of between 1% and 5%, providing the portfolio with a relatively predictable organic rental growth, with CPI forecast to increase at an average of 2.1% per year from 2020 to 2022.

In terms of inorganic growth, one of Elite Commercial REIT’s sponsors, Elite Partners Holdings, has looked at over £3 billion worth of potential acquisitions in the UK over the last two years, primarily on assets with high credit-quality tenancy profiles.

(Note: Elite Commercial REIT’s sponsors are Elite Partners Holdings, Ho Lee Group, and Sunway RE Capital Pte Ltd, a wholly-owned subsidiary of Sunway Berhad, one of Malaysia’s largest conglomerates.)

The sponsors have each provided Elite Commercial REIT with a right of first refusal (ROFR) over all future UK commercial acquisitions. ROFR means that the sponsors will offer properties to the REIT first before offering it to any third-party companies.

In particular, a ROFR has been granted by Elite UK Commercial Fund II (a private trust managed by a wholly-owned subsidiary of Elite Partners Holdings) over 62 commercial properties located across the UK, which are mainly leased to the UK Government over the long-term.

At the listing date, Elite Commercial REIT is expected to have a gearing ratio of 33.6%, which is well below the regulatory limit of 45%. The low gearing also provides ample debt headroom for the REIT if it wishes to acquire any properties from its sponsors.

Management Fee Structure for Elite Commercial REIT

The management fee that is payable to Elite Commercial REIT’s manager is two-fold: the base fee and performance fee.

The base fee is 10% of Elite Commercial REIT’s annual distributable income.

The performance fee will be 25% of the increase in distribution per unit (DPU) in a financial year over the DPU in the preceding financial year multiplied by the weighted average number of units in issue.

I like this fee structure as I believe the performance-based feature would incentivise Elite Commercial REIT’s manager to grow DPU and not just the portfolio size or net property income without a corresponding increase in DPU.

Another Singapore REIT with a similar management fee structure is Mapletree North Asia Commercial Trust (SGX: RW0U).

Elite Commercial REIT’s manager will be 85% owned by Elite Partners Holdings and 15% by Sunway.

Main Risks to Note for Elite Commercial REIT

There are some major risks for Elite Commercial REIT that potential investors should note:

  1. Elite Commercial REIT is dependent on the UK government for rental payments;
  2. A majority of the properties’ lease agreements are due for expiry in 2028, and certain lease agreements contain an option for the tenant to terminate in 2023;
  3. Neither Elite Commercial REIT nor its manager has a long-established operating history;
  4. Elite Commercial REIT’s operations may be negatively affected by Brexit and potential Scotland independence; and
  5. Elite Commercial REIT may be exposed to risks associated with exchange rate fluctuations and changes in foreign exchange regulations.

Something that pops out for me is point 3. With regard to that, the IPO prospectus stated:

Elite Commercial REIT was constituted on 7 June 2018, and the Manager was incorporated on 2 August 2019. Neither Elite Commercial REIT (as a REIT) nor the Manager (as the manager of Elite Commercial REIT) has sufficient operating histories by which their past performance may be judged. The lack of a long established operating history will make it more difficult for investors to assess Elite Commercial REIT’s future performance. There is no assurance that Elite Commercial REIT will be able to generate sufficient revenue from operations to make distributions or that such distributions will be in line with those set out in “Profit Forecast and Profit Projection”. 

Upon further digging, I noticed that Elite Commercial REIT acquired the 97 properties in its portfolio from an unrelated third-party vendor, a subsidiary of Telereal Trillium Limited, only on 16 November 2018 for £282.15 million.

The prospectus stated that the vendor which sold the properties to Elite Commercial REIT “did not warrant the accuracy” of the underlying historical financials and operating data before the date of acquisition of the properties. Hence, the REIT’s manager is not able to prepare historical pro forma financial statements for the period before 16 November 2018.

In my opinion, it’s odd the REIT’s manager is unable to provide the financial statements prior to the property acquisitions, and that the properties are being spun into an IPO in a little more than a year’s time.

Potential investors should be aware of the risks stated in the IPO prospectus and not be drawn in by the positive aspects of the REIT alone.

What Are Your Thoughts About Elite Commercial REIT?

Why not check out Seedly’s QnA and let us know your thoughts on Elite Commercial REIT

Elite Commercial REIT Seedly Community Q&A

Disclaimer: The information provided by Seedly serves as an educational piece and is not intended to be personalised investment advice. ​Readers should always do their own due diligence and consider their financial goals before investing in any stock. 

About Sudhan P
It isn't fair competition when only one company in the world makes Monopoly. But I love investing in monopolies. Before joining the Seedly hood, I had the chance to co-author a Singapore-themed investment book – "Invest Lah! The Average Joe's Guide To Investing" – and work at The Motley Fool Singapore as an analyst.
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