Elite Commercial Reit lodges preliminary prospectus

Singapore

IN WHAT is poised to be 2020's first initial public offering (IPO) on the Singapore Exchange, Elite Commercial Reit Management has lodged a preliminary prospectus to list a UK-focused Singapore Reit (real estate investment trust) on the mainboard.

If things go as planned, Elite Commercial Reit will be the first Reit denominated in British pound to be listed in Singapore.

It has an initial portfolio of 97 properties across the UK, all of which are freehold except one.

The trust's preliminary prospectus lodged on Friday contained no information on pricing or issuance size, but an earlier report in The Business Times reported that it was looking to raise about £150 million from the IPO.

As some 99 per cent of its gross rental income stems from leases with the UK government - primarily DWP which is the largest public service department - the manager said that the Reit's portfolio provides "stable, recession-proof and Brexit-proof cash flows".

With a total net internal area of around 2.6 million square feet spanning a site area of some 47 hectares, the initial portfolio has an aggregate indicative appraised value of £319.1 million as at end-August 2019, according to the document.

The assets are geographically diversified in London as well as the South and North, and the Midlands, Yorkshire, Scotland and Wales.

The Reit's manager said the IPO portfolio will provide a net property income (NPI) yield of 7.1 per cent based on the forecast for 2020 - an attractive yield spread to UK Government 10-year bonds despite being backed by the same sovereign credit. This yield, it said, was particularly attractive in the context of the prevailing low interest rate environment.

Projected distributable income for the Reit is £16.2 million for the year ending December 2020 and £16.6 million for 2021. Net property income is forecast to be £22.7 million a year for 2020 and 2021.

The Reit's total number of units in issue as at the date of the prospectus is 95 million units, which are currently held by private trust investors, of which the top three - Ho Lee Group Trust, Sunway RE Capital and Kim Seng Holdings - hold around 26 per cent, 21 per cent and nearly 16 per cent, respectively.

Separately, cornerstone investors - UBS AG's Singapore and Hong Kong branch, Bank of Singapore and CIMB's Singapore branch - have agreed to subscribe for some 77.83 million units at the offer price on behalf of their private banking clients.

As at the listing date, Elite Commercial Reit is expected to have gross borrowings of approximately £97.5 million.

The Reit's sponsors are Singapore's Elite Partners Holdings (EPH) and property and construction firm Ho Lee Group as well as a wholly-owned unit of Malaysian conglomerate Sunway Group.

The Reit's manager, Elite Commercial Reit Management, said it believes that it will be able to leverage the sponsors' extensive sourcing capabilities to pursue distribution per unit, value and quality-accretive acquisition to grow the portfolio.

It said that EPH has examined over £3 billion worth of potential acquisitions in the UK over the past two years, primarily on assets with high credit-quality tenancy profiles.

The sponsors have also provided the Reit with a right of first refusal over all future UK commercial acquisitions which includes Elite UK Commercial Fund II - a private trust managed by a unit of EPH comprising over 62 commercial properties located across the UK which are primarily under long-term leases to the UK government.

The acquisitions of these properties were only completed Dec 30, 2019 and, hence, they have not been included in the IPO portfolio.