Elite Commercial REIT has acquired 58 commercial buildings across the UK, its first acquisition since its listing on the mainboard of the Singapore Exchange (SGX), announced its manager.
On Oct 19, Elite Commercial REIT entered into a conditional share purchase agreement with Elite Bushel Holding, a subsidiary of Elite UK Commercial Fund II, to acquire 100% of the share capital in Elite Amphora and Elite Cask (target SPVs).
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Elite UK Commercial Fund II had, during the time of the initial public offering of Elite Commercial REIT, granted a right of refusal over its held assets.
The agreed price of the properties of £212.5 million ($372.6 million) was negotiated on a willing-buyer and willing-seller basis. The price also takes into account the independent valuations of the New Properties conducted by independent valuers Colliers International Valuation UK LLP, and BNP Paribas Real Estate Advisory & Property Management UK Limited.
The properties are “well located” in London and across other major UK cities including Manchester, Edinburgh, Liverpool and Cardiff, and have a total net internal area (NIA) of 1,307,064 sq ft.
About 36% of the new properties are located in London, bringing Elite Commercial REIT’s overall exposure in the city to 14%, providing higher potential for rental and capital growth, as well as redevelopment opportunities.
According to the manager, the new properties provide attractive rental yields of 8.0% excluding the London properties, compared to the existing portfolio’s rental yield of 7.3%.
On a direct comparison basis, the new properties provide an average of 70 basis points higher rental yield to the REIT’s existing portfolio.
The new properties’ London assets provide a rental yield of 4.3%.
The proposed acquisition extends the REIT’s exposure to AA-rated UK sovereign credit while diversifying its tenant mix.
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The proposed acquisition is also said to be accretive to the REIT. Following the completion of the acquisition, the REIT will see a 66.6% increase in its valuations to £531.6 million from £319.1 million.
It will also see a 59.1% increase in its net property income (NPI).
“With the REIT’s enlarged portfolio and income, Elite Commercial REIT's debt headroom will be increased, further contributing to its stability while broadening its scope to pursue other accretive acquisitions in the future,” it says.
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The manager says it intends to finance the proposed acquisition with the issue of consideration units to Elite Bushel Holding (the vendor) or Elite UK Commercial Fund II (the vendor nominee), net proceeds from the equity fund raising, as well as external bank borrowings.
Elite UK Commercial Fund II will receive the consideration units following the proposed acquisition, and it will do a “distribution in specie” of such units to its investors, who are unrelated third parties.
This would result in Elite UK Commercial Fund II's largest investor, PartnerRE, holding approximately 23% of the units.
PartnerRE has voluntarily agreed to provide a moratorium not to dispose of 100% of the units for at least six months, and at least 50% of the units for the next six months thereafter.
Each of the remaining investors of Elite UK Commercial Fund II will hold less than 5% of the units in issue.
“We are excited about this acquisition, which adds quality, predominantly UK Government-leased commercial assets to Elite Commercial REIT’s portfolio, demonstrating our commitment to execute our stated strategy for growth,” says Shaldine Wang, CEO of the manager.
“Notwithstanding the global economic headwinds, the new properties are expected to provide stable cashflows and attractive recession-proof yields, and will maintain the enlarged REIT’s exposure to high credit quality UK sovereign tenants in addition to the counter-cyclical DWP,” she adds.
Wang further commented that the proposed acquisition will “substantially enlarge our REIT’s portfolio size and market capitalisation. It is expected to benefit our unitholders upon completion, with an attractive DPU accretion of 3.2%”.
“This is in line with Elite Commercial REIT’s objective to provide stable returns and opportunities for future income and capital growth. We have also structured the transaction so that there is a certainty of completion, regardless of equity fund raising,” she adds.
As at 9.36am, units in Elite Commercial REIT are trading flat at 64 British pence.