Elite Commercial REIT a value buy or value trap?
Is it really the right place and right time for Elite Commercial REIT? At a time when the whole world is firmly gripped by fear because of the Wuhan coronavirus, Elite Commercial REIT braved the storm to seek a listing on SGX mainboard. Notably, this IPO came after a slew of S-REIT listings in 2019, which included ARA US Hospitality, Eagle Hospitality Trust and Prime US REIT. Those were primarily US assets but Elite Commercial REIT differentiates itself as the first UK-focused S-REIT.
It seems that the management is determined to make the IPO a success. The public offering constitutes only 5,734,300 units while there is international placement of 108,981,000 units. In addition, 77,827,900 units are allocated to cornerstone investors. Understandably, given the current climate, such tactical allotment is needed to ensure that a successful IPO subscription.
The distribution yield is a mouth-watering 7.1% but whether this sort of distribution yield is sustainable is one big question mark given that the forecast is based on merely 15 months of financial results. The private trust investors were “unwilling to provide representations and warranties” for the latest three financial years of Elite Commercial Trust and had sought exemption from SGX.
Will Elite Commercial REIT turn out to be falling knife like Eagle Hospitality Trust or soar into the sky like Parkway Life REIT? In this article, I will weigh the investment merits and major risk factors of Elite Commercial REIT.
Note that this is an opinion article and not meant to be a financial advice. Please do your due diligence or engage financial advisors before investing in the stock market. Furthermore, my investment policy is not to invest in IPOs. So, I will not be participating in the IPO of Elite Commercial REIT. Whether the unit price of Elite Commercial REIT will surge or collapse has no impact on me. Thus, this article is not meant to induce readers to make any form of investment decisions.
Investment merits of Elite Commercial REIT
On paper, Elite Commercial REIT looks good. In fact, almost too good to be true. The portfolio consists of 97 buildings leased to the UK government. The portfolio is 100% occupied with a long WALE of 8.7 years. In Singapore, the WALE of most commercial S-REITs is about 2 -3 years. So the long WALE for Elite Commercial REIT should offer long-term stability for investors. Furthermore, I like the fact that the cash flow of the portfolio is backed by AA-rated UK Government sovereign credit. This is something that most commercial S-REITs lack.
Most importantly, Elite Commercial REIT positions itself as a defensive counter as its tenant, the Department for Work and Pension (DWP), is a counter-cyclical occupier that provides recession-proof cash-flow. Despite so, investors must understand that this [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]
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