Elite Commercial Reit prices units at £0.68 or S$1.21 each

Singapore

ELITE Commercial Reit braved the choppy market to launch its initial public offering (IPO) on Tuesday, pricing its units at £0.68 or S$1.21 per unit, which will translate to a forecast distribution yield of 7.1 per cent for 2020 and 7.2 per cent for 2022.

This is the first pound-denominated Reit listing in Singapore in what could pave the way for more UK-focused Reits to list here, including new asset classes such as student accommodation.

The retail and placement tranches, together with the cornerstone units - the latter mostly taken up by private banking and wealth management clients of UBS, Bank of Singapore, and CIMB - will raise gross proceeds of about £130.9 million in all.

The retail tranche represents just 5 per cent of the offering, which management told reporters in an interview on Tuesday is a function of the "small" offering size.

Joel Cheah, chief financial officer of the Reit manager, said that they were guided by the banks to have such an allotment structure, after subtracting the cornerstone and placement tranches.

"We have been advised that based on the current offering size we have, that would be a function of what would be the most ideal to ensure significant or good market momentum in the secondaries.

"This vehicle has been structured in such a way that there is a lot of certainty in execution. You already have a base of private trust investors who are rolling over and you have another layer of cornerstone investors who are also subscribing, so the balance is what institutional or anchor investors will have. Then we have a small tranche for retail."

There is, however, institutional participation from the existing investors in the private trust that holds the properties. All have agreed to roll over their existing stakes into the listed Reit vehicle.

These include investment holding company Kim Seng Holdings, formerly a sponsor of Viva Industrial Trust; as well as Apricot Capital, the private investment firm of Super Group's Teo family; LB Venture Capital, a wholly-owned unit of the Lian Beng Group; and Partner Reinsurance Asia, a UK-based reinsurance company.

The private trust investors will have a combined stake of 43.7 per cent in the Reit. Including cornerstone investors, the combined stake would be 67.2 per cent.

The Reit's assets are unique in that they are 99 per cent let to the UK government and primarily used by the Department for Work and Pensions, the UK's biggest public service department responsible for welfare, pensions and child maintenance policy. The manager thus prides itself on its very counter-cyclical and recession-proof occupier, which makes the asset class very stable.

Asked if this subjects the Reit to single-tenant risk, Shaldine Wang, CEO of Elite Commercial Reit manager, said single-tenant risks apply more to commercial tenants rather than sovereigns. "We want to maintain the credit standing of our tenant as long as possible so we want to be focused in the near term."

Chief investment officer Jonathan Edmunds added that the Reit is not actively looking to diversify to corporate clients, although he believes the good location of the assets and attractive rental rates at £9.11 per sq ft per annum would make the assets as attractive to commercial tenants.

The Reit has assets under management of about £320 million currently and seeks to grow its portfolio over time through the potential development of undeveloped land in its portfolio, including a possible doubling in size of its Peel Park asset in Blackpool.

In addition, one of the sponsors, Elite Partner Holdings, has examined over £3 billion worth of potential acquisitions in the UK over the past two years, primarily assets with high credit-quality tenancy profiles.

The Reit manager is 85 per cent held by Elite Partners Holdings (in which former Viva Industrial Trust founder Victor Song and construction and property firm Ho Lee Group have a stake), and 15 per cent by Sunway RE Capital. The sponsors will own about 20 per cent in the Reit vehicle post-IPO.

The sponsors have also each given the Reit a right of first refusal over all future UK commercial acquisitions, including Elite UK Commercial Fund II, a private trust holding over 62 commercial properties located across the UK, primarily long-term leased to the UK government.

The deal was handled by OCBC, UBS, CGS-CIMB Securities (Singapore) and China International Capital Corporation (Singapore).