The prospectus for Elite Commercial REIT (the REIT) was registered with the Monetary Authority of Singapore’s OPERA site on 28 Jan 2020, along with the Product Highlights Sheet. Let us take a look on top of what we had covered previously here.
The Numbers And Figures
The offering price of the IPO is Sterling Pound (GBP) 0.68, or in Singapore Dollar (SGD) terms 1.21, based on the exchange rate of GBP 1 = SGD 1.7794. The yield (over the IPO price) is forecasted to be 7.1% for the year 2020 and projected to be 7.2% for the year 2021.
The aggregate leverage (which I assume it to be gearing) as at the listing date will be approximately 33.6%. Most of the other figures remained the same as per my previous post for this REIT, such as the number of properties (97) and the weighted average lease expiry (8.6 years).
The application for the IPO had started on 28 Jan 2020, and will close at 4 Feb 2020, 12pm. The REIT will be listed on the Singapore Exchange on 6 Feb 2020, 2pm.
Calculating The Net Asset Value
Though there is no indication of the REIT’s net asset value (NAV) in the prospectus (or I could have missed it from among the 700-plus pages), we can calculate it based on the information provided, with some assumptions.
Asset = Liability + Shareholder Equity, therefore Shareholder Equity (or NAV) = Asset – Liability, and NAV per share = NAV / Number of shares (units) outstanding.
Hence, with the numbers from pages 61 and 66 of the prospectus, the NAV per unit is:
GBP 196,201,000 (unitholders’ fund as at 31 Aug 2019) / 334,933,000 (number of units issued and issuable by the end of 2020) = GBP 0.586.
Thus, the price-to-book value is at 0.68 / 0.586 = 1.16, meaning the IPO price is 16% above the rough NAV calculated.
The Tax Question
A big disclaimer from me: I am no tax expert. But there might be some tax implications with regards to the distribution of this REIT, positive and negative. Under the sensitivity analysis (page 124), it was indicated that should the corporate tax rate is reduced from 19% to 17% from 1 Apr 2020, the yield for the forecast year of 2020 and projection year of 2021 would be 7.2% and 7.3%, instead of 7.1% and 7.2% respectively. On the flip side, subject to the United Kingdom’s CIR / Anti-hybrid rules, the yield could be at 6.8% and 6.9% for the same said years of 2020 and 2021 respectively.
The Bedokian’s Second Take
My take from the previous post still stands. The big plus point for this REIT will be the high yield (between 6.8% to 7.2%), but this will be compromised by forex fluctuations which is directly related to the outcome of the U.K. economy after Brexit (officially tomorrow). With the IPO price being 16% above its rough NAV, it is overvalued somewhat. However, if you want to have a slice of a relatively stable British pie in your portfolio, then this would be a good start.
Thing is, only 5,734,300 units are open for the public offering, so even if you are interested, it may get a little difficult to be balloted more than 1,000 units, or you may get none at all.
Monetary Authority of Singapore. OPERA. Elite Commercial REIT Prospectus and Product Highlights Sheet. 28 Jan 2020. https://eservices.mas.gov.sg/opera/Public/CIS/ViewSchemeDetail.aspx?schemeID=500c7153fce646909d1eaf414599d9d8 (accessed 30 Jan 2020)