Elite Commercial REIT

[cyclone]

Elite Commercial REIT  Closes First Day Trading at £0.71, 4.4% Higher than IPO Price

Elite Commercial REIT began its first day of trading at 2.00 p.m. today on the Main Board of the Singapore Exchange Securities Trading Limited ("SGX-ST") under the stock code “MXNU”.

Elite Commercial REIT had an opening price of £0.705 and an intra-day high of £0.715 per unit. This translated to approximately 3.7% and 5.1% higher than the Initial Public Offering (“IPO”) price of £0.68 per unit, respectively.

Close to 11.0 million units exchanged hands today and the closing price of £0.71 per unit was approximately 4.4% higher than the IPO Offering Price.

About Elite Commercial REIT

Elite Commercial REIT is a Singapore real estate investment trust established with the investment strategy of principally investing, directly or indirectly, in commercial assets and real estate-related assets in the United Kingdom (“UK”).

The initial portfolio of Elite Commercial REIT has an aggregate indicative appraised value of approximately GBP 319.1 million as at 31 August 2019. It comprises 97 predominantly freehold quality commercial buildings located across the UK, with a total net internal area of approximately 2.6 million square feet and a total site area of approximately 47 hectares. 

More details in https://links.sgx.com/FileOpen/Elite%20C...eID=595553

[soros]

The IPO received an overall total subscription valued at approximately £266.8 million and was approximately 3.4 times1 subscribed.

Is 3.4 times subscribed similar to previous IPOs for SGX reits ?

[weijian]

Elite became 1 of the first S-REITs to raise capital via equity in the S-REIT "higher rates for longer" turmoil. It would be constructive to look at its results. For a start, Sunway Group, a smaller substantial shareholder and also owns part of the REIT manager, had promised to backstop the rights issue.

- Total rights =  103,354,690
- SSH provisional rights taken up =  1,149,059 + 6,037,800 + 7,884,762 + 23,341,881 = 38,413,502
- % of minorities who took up rights = (63,311,293 - 38,413,502)/(103,354,690 - 38,413,502) = 24,897,791/64,941,188 = 38%
- SSH excess rights taken up = 53,109,935
- % of minorities who took up excess rights = (61,914,248 - 53,109,935)/64,941,188 = 14%.

No unexpected, the rights taken up by non-SSH was unwhelming, even though the PR said that it was "oversubscribed by 120%". Only about 38% of minorities subscribed to the rights and 14% (or ~40% of these 38%) subscribed to excess rights.

Elite Commercial REIT's rights results seem to suggest that in current conditions, someone with "deep pockets" is required to back stop it, for a rights issue to be "successful". For Elite Commercial REIT, it has 3 SSH (pre-rights: Partner Reinsurance Group - 18.6%, Ho Lee Group Trust and associates - 9%, Sunway Group- 4.8%). Sunway will become 2nd biggest SSH after this rights issue. Does seem to suggest the more SSH or partners you have, the higher probability for 1 of them to be "deep pocket" SSH?

RESULTS OF THE PREFERENTIAL OFFERING BY ELITE COMMERCIAL REIT

A total of 103,354,690 Preferential Offering units were offered to existing Unitholders at a ratio of 214 Preferential Offering units for every 1,000 existing units in Elite REIT at an issue price of £0.27 per Preferential Offering unit.

Valid acceptances 63,311,293 61.3%
Excess applications 61,914,248 59.9%
Total 125,225,541 121.2%

Pursuant to the Undertakings provided by each of EPH, SRCPL, HLGT and the PartnerRe Entities, each of EPH, SRCPL, HLGT and the PartnerRe Entities has accepted in full its provisional allotment of 1,149,059, 6,037,800, 7,884,762 and 23,341,881 Preferential Offering Units, respectively.  In addition to SRCPL’s acceptance of its provisional allotment of Preferential Offering Units, SRCPL applied for 53,109,935 Excess Undertaking Units pursuant to its Undertaking

https://links.sgx.com/FileOpen/Elite%20C...eID=782998

[CY09]

Its all down to the pricing of the rights/offerings. If a discount is large enough, people would register for their entitlement.

Ascott REIT had a same situation where they priced their offering only at less than 10% to the share price (similar to Elite), the take up rate is low. My view is that if the discount is large enough, say 40% to current prices; take up rate by minorites will be high

[ghchua]

Hi CY09,

Normally for preferential offers, the discount will be quite tight because it is not in the interest of those shareholders who did not/unable to take up the offer. They cannot sell nil paid rights in the market like a rights issue.

Furthermore, if you have support from substantial shareholders for the issue, then it makes no sense to make the discount larger just to attract more minorities to subscribe. After all, the issue is to raise funds for the company and they have already that certainty on how much to raise with undertakings and backstop.

[weijian]

The count from AR23 shows there are a total of 10 directors. All of them are NEDs, and evenly split between independent directors (IDs) and non-independent directors (NIDs). Elite Commercial REIT's market cap is ~140mil and annual BOD fees are estimated to be ~480k.

Since it has "3 SSH" and the BOD list show that at least 1 of the SSH has 2 nominees - it is quite clear why Elite Commercial REIT has "so many" directors to balance out the NIDs.

Elite Commercial REIT is actually in a much better situation than the US office REITs in which the Sponsors' hands are tied in terms of supporting EFR. So from the way 1 of the SSH back-stopped the last EFR, I reckon it is worthwhile to pay a "little bit more" in terms of fees.

ANNUAL GENERAL MEETING TO BE HELD ON 29 APRIL 2024 RESPONSES TO SUBSTANTIAL AND RELEVANT QUESTIONS

Question: The Company has a larger than usual number of directors/alternate directors for an enterprise of this nature. Can the Manager comment on any plans to streamline the size of the Board in the interests of improving decision-making effectiveness?

https://links.sgx.com/FileOpen/Elite%20R...eID=797659

[CY09]

https://links.sgx.com/FileOpen/Elite%20U...eID=814483

FS: https://links.sgx.com/FileOpen/Elite%20U...eID=814482

A good 1H result from the REIT. Despite the reduction in property income, the deleveraging has ensure the REITs net income remained about the same.

While distribution is at 100% payout, the REIT seems able to give 2.8 pence per unit distribution. With a strong tenant in the UK government, the REIT does seem be priced too low and as a 10.5% dividend yielder, it is cheap. Re-rating has occurred with the REIT up 8% on the day of results release.

A further re-rating may occur making it a 35 cents REIT at about 8% yield.

<Not vested, but surprised by the strong performance of the REIT>