Elite Commercial Reit to lodge prospectus next week

Singapore

ELITE Commercial Real Estate Investment Trust (Reit) plans to lodge its listing prospectus next week before the Chinese New Year break.

If successful, it will be the first initial public offering (IPO) of 2020, and the first Reit denominated in British pound to be listed in Singapore.

The Edge Singapore first reported on Tuesday that its initial yield is likely to be between 6 per cent and 7 per cent.

The portfolio - valued at around £320 million (S$567 million) - comprises 97 freehold properties, all of which are in the United Kingdom. A quarter of the properties - by rental income - are in London, with the rest in second- and third-tier cities across the UK, including Glasgow and Cardiff.

The Business Times understands that the Reit is looking to raise about £150 million from the IPO.

The sponsors are understood to be the ex-founders of Viva Industrial Trust (VIT), led by Ho Lee Group, as well as Malaysia's Sunway Group, which has an existing stake in the portfolio of properties.

These properties are currently held in Elite UK Commercial Fund I. Around 99 per cent of the properties by rental income are occupied by Jobcentre Plus, a unit of the UK government's Department for Work and Pensions. They are held on 10-year full repair and insurance leases with built-in rent uplifts, and leases ranging from five to 10 years, with options to extend.

Since the properties are Jobcentre Plus properties, their locations are in town or city centres, within walking distance from transportation nodes. Jobcentre Plus is a UK government-funded employment agency and social security office that can be found in most cities. It aims to help people find employment in the UK.

Market watchers here note that the tenant concentration risk is high but the portfolio looks stable, with a long weighted average lease expiry of eight-plus years and a strong tenant profile that is nearly fully backed by the UK government.

One said: "The timing of the IPO also looks good with some Brexit resolution in sight. If the yield is closer to 7 per cent, it should have a good demand.

"But the portfolio size is small, which could limit its liquidity and acquisition appetite with less debt headroom, as well as the participation of bigger institutional funds."

Another said: "I see this as a relatively small portfolio spread across a large number of 97 properties, and therefore the asset manager's role is critical to support and drive distribution per unit (DPU) growth.

"Tenancies backed by government agencies like these are typically lower risk and should support DPU visibility, but we must look at the lease structures of each asset - for instance, are there per annum rental escalation clauses? What are rents and occupancies on each property like, relative to history, and how much growth will the manager expect?"

There are also questions about its pipeline of assets in the future. An Alliance News article at the end of 2019 reported that FTSE 250-listed property investor CLS Holdings has sold its portfolio of 19 UK regional offices to Singaporean investment firm Elite Capital Partners, for £65 million. The portfolio amounts to 618,223 square feet and has a net rent of £6.5 million per annum. These assets could make up potential assets for acquisition by the Reit.

Most of the assets in Elite Commercial Reit were acquired in late 2018 by Elite Partners Capital from Telereal Trillium, a privately owned property firm in the UK.

According to the OCBC Investment Research S-Reit tracker, Singapore office Reits are trading at a forward yield of about 6 per cent. For Reits with office exposure to Europe, Cromwell European Reit was trading at 7.4 per cent as at Jan 6, 2020.

Victor Song, CEO and managing director of Elite Partners Capital, used to be the head of asset management and investment director at VIT before its merger with ESR-Reit in 2018 to become the fourth largest Singapore-listed industrial Reit. VIT was subsequently delisted in October 2018.

While at VIT, Mr Song was in charge of formulating the business plans for the Reit's properties and was involved in acquisitions and divestments. Prior to joining VIT, he was the sole proprietor of VS Real Estate, where he was managing real estate-related contracts. Before that, Mr Song was in the investment team of Cambridge Industrial Trust Management, where he was also involved in investment strategy.

Mr Song co-founded Elite Partners with Chiew Chuanjin and Charles Hoon in 2017.

Investor interest has been driving the performance of Reits amid global uncertainties, and Singapore has been cementing its position as a global Reit hub by attracting more pure-play overseas assets to list here.

The potential listing of Elite Commercial Reit is in line with a recent spate of foreign commercial listings that are smaller in scale compared to the incumbents, but offer exposure to new markets for Reit investors.

This were four such listings last year: ARA US Hospitality Trust, Eagle Hospitality Trust, Prime US Reit and Lendlease Global Commercial Reit.