SGX Market Strategist, Equity & Fixed Income, Singapore Exchange Ltd (SGX)

Geoff Howie

SGX Market Strategist, Equity & Fixed Income

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Singapore Exchange Ltd (SGX)

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Equity Bottom-Up

Keppel Pacific Oak US REIT / Equity Bottom-Up

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<p>ELEVEN smaller cap Reits in the iEdge S-Reit Index with market capitalisation under S$1 billion have all generated positive returns in Q1 2021. The 11 Reits posted 14.0 per cent total returns in the year-to-date (YTD) through to April 8, outperforming the index's 2.4 per cent total returns.</p>

<p>The top five best performing smaller cap Reits of the index in the YTD through to April 8 are: ARA Logos Logistics Trust (25.6 per cent), Sabana Shari'ah Compliant Reit (23.9 per cent), ARA US Hospitality Trust (22.2 per cent), First Reit and Lippo Malls Indonesia Retail Trust (both 16.9 per cent).</p>

<p>These five were also among the six best performing Reits in the overall iEdge S-Reit index, with Starhill Global Reit (market cap of S$1.3 billion) coming in fourth at 16.9 per cent total returns.</p>

<p>In terms of price-to-book ratios, the 11 smaller cap Reits trade at an average 0.86 times, while the index trades closer to 1.05 times.<br><br>
ARA Logos Logistics Trust (ALOG) has a portfolio of 27 logistics warehouses in Singapore and Australia valued at S$1.28 billion. In its recently published annual report, the Reit attributes its growth in 2020 to its new sponsor, Logos, which owns logistics spaces across the Asia-Pacific. ALOG's portfolio remained resilient and delivered a 3.4 per cent and 4.8 per cent growth in FY2020 gross revenue and net property income, respectively. The Reit also inked new leases and achieved positive rental reversion of 4.8 per cent in the financial year and has a gearing ratio of 39.0 per cent.<br><br>
Sabana Reit's portfolio has 18 Singapore properties across high-tech industrial, warehouse and logistics, chemical warehouse and logistics, and general industrial sectors with a total value of S$0.9 billion. In its FY2020 results, the Reit reported 2.29 cents for its H2 2020 distribution per unit (DPU), a 47.7 per cent increase year-on-year, bringing its full year DPU to 2.76 cents. Amid a challenging 2020, the Reit achieved positive rental reversion of 0.9 per cent and maintains a gearing ratio of 33.5 per cent. On March 10, the Reit announced that its NTP+ Mall at New Tech Park has received temporary occupancy permit and is set to open in Q2 2021.</p>

<p>ARA US Hospitality Trust (ARA H-Trust) is a stapled security with a portfolio of 41 upscale select-service hotels across 22 states in the United States operating under the Marriott and Hyatt brands. The trust notes in its latest annual report that despite having recorded a net property loss of US$5.0 million and nil distributable income in FY2020, all 41 hotels have since reopened in July 2020 and the trust has generated positive cash flows from operations for FY2020. ARA H-Trust remains confident in the long-term fundamentals of the US hospitality market. Its properties are oriented towards domestic transient leisure and business travellers and is less reliant on group and international demand.</p>

<p>SPH Reit, first to kick off the current reporting season for S-Reits, announced an improvement across its portfolio of retail malls. Gross revenue increased 4.9 per cent year-on-year and Q2 FY2021 DPU was issued at 1.24 cents, a 3.3 per cent increase quarter-on-quarter. SPH Reit noted that tenant sales at its Singapore malls have shown signs of recovery, following the phased lifting of safe distancing measures.</p>

<p>Frasers Logistics &amp; Commercial Trust (FLCT) has announced that it will join the Straits Times Index (STI) on April 13. FLCT will replace Jardine Strategic on the STI following Jardine Matheson's announcement on March 8 to simplify the parent company structure and acquire Jardine Strategic.<br><br><strong><em>REIT Watch is a weekly column on The Business Times, <a href="https://www.businesstimes.com.sg/companies-markets/s-reits-under-s1b-lead-sector-in-q1-2021">read</a> the original version.</em></strong></p>
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    Up for the year


ELEVEN smaller cap Reits in the iEdge S-Reit Index with market capitalisation under S$1 billion have all generated positive returns in Q1 2021. The 11 Reits posted 14.0 per cent total returns in the year-to-date (YTD) through to April 8, outperforming the index's 2.4 per cent total returns.

The top five best performing smaller cap Reits of the index in the YTD through to April 8 are: ARA Logos Logistics Trust (25.6 per cent), Sabana Shari'ah Compliant Reit (23.9 per cent), ARA US Hospitality Trust (22.2 per cent), First Reit and Lippo Malls Indonesia Retail Trust (both 16.9 per cent).

These five were also among the six best performing Reits in the overall iEdge S-Reit index, with Starhill Global Reit (market cap of S$1.3 billion) coming in fourth at 16.9 per cent total returns.

In terms of price-to-book ratios, the 11 smaller cap Reits trade at an average 0.86 times, while the index trades closer to 1.05 times.  
ARA Logos Logistics Trust (ALOG) has a portfolio of 27 logistics warehouses in Singapore and Australia valued at S$1.28 billion. In its recently published annual report, the Reit attributes its growth in 2020 to its new sponsor, Logos, which owns logistics spaces across the Asia-Pacific. ALOG's portfolio remained resilient and delivered a 3.4 per cent and 4.8 per cent growth in FY2020 gross revenue and net property income, respectively. The Reit also inked new leases and achieved positive rental reversion of 4.8 per cent in the financial year and has a gearing ratio of 39.0 per cent.  
Sabana Reit's portfolio has 18 Singapore properties across high-tech industrial, warehouse and logistics, chemical warehouse and logistics, and general industrial sectors with a total value of S$0.9 billion. In its FY2020 results, the Reit reported 2.29 cents for its H2 2020 distribution per unit (DPU), a 47.7 per cent increase year-on-year, bringing its full year DPU to 2.76 cents. Amid a challenging 2020, the Reit achieved positive rental reversion of 0.9 per cent and maintains a gearing ratio of 33.5 per cent. On March 10, the Reit announced that its NTP+ Mall at New Tech Park has received temporary occupancy permit and is set to open in Q2 2021.

ARA US Hospitality Trust (ARA H-Trust) is a stapled security with a portfolio of 41 upscale select-service hotels across 22 states in the United States operating under the Marriott and Hyatt brands. The trust notes in its latest annual report that despite having recorded a net property loss of US$5.0 million and nil distributable income in FY2020, all 41 hotels have since reopened in July 2020 and the trust has generated positive cash flows from operations for FY2020. ARA H-Trust remains confident in the long-term fundamentals of the US hospitality market. Its properties are oriented towards domestic transient leisure and business travellers and is less reliant on group and international demand.

SPH Reit, first to kick off the current reporting season for S-Reits, announced an improvement across its portfolio of retail malls. Gross revenue increased 4.9 per cent year-on-year and Q2 FY2021 DPU was issued at 1.24 cents, a 3.3 per cent increase quarter-on-quarter. SPH Reit noted that tenant sales at its Singapore malls have shown signs of recovery, following the phased lifting of safe distancing measures.

Frasers Logistics &amp; Commercial Trust (FLCT) has announced that it will join the Straits Times Index (STI) on April 13. FLCT will replace Jardine Strategic on the STI following Jardine Matheson's announcement on March 8 to simplify the parent company structure and acquire Jardine Strategic.  REIT Watch is a weekly column on The Business Times, read the original version.



REIT Watch - S-Reits under S$1b lead sector in Q1 2021

10 Questions for Elite Commercial REIT
Company Overview Elite Commercial REIT is established with the investment strategy of principally investing, directly or indirectly, in commercial assets and real estate-related assets in the United Kingdom (UK). Elite Commercial REIT has a portfolio of 155 predominantly freehold quality commercial buildings across the UK, with a total net internal area of approximately 3.9 million square feet. The REIT’s sponsors include Elite Partners Holdings, Ho Lee Group and Sunway RE Capital. Link to StockFacts company page

Describe Elite Commercial REIT’s recent financial performance for its first year since listing.


Elite Commercial REIT reported a strong set of results for the period from 6 Feb 2020 to 31 Dec 2020, outperforming IPO forecast with higher distributable income to unitholders and Distribution Per Unit (DPU).
Despite the challenging environment and economic uncertainty arising from the COVID-19 pandemic and Brexit, the REIT is well supported by stable cashflows backed by its AA-rated tenant, the UK Government with its uniquely counter-cyclical operations of the Department for Work and Pensions (DWP). As a result, the REIT achieved a distributable income to unitholders of £14.8 million and DPU of 4.44 pence, which is 2.1% and 2.3% higher than IPO forecasts, respectively.
There was also an uplift in portfolio valuation with a fair value gain of investment properties of £15.9 million, reflecting the underlying intrinsic value of the properties.



10 in 10 with Elite Commercial REIT - Landlord to the UK Government

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<div><em><strong>Non- SGX Report: These equity research reports are not written by the SGX.</strong>&nbsp;SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.</em></div>
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<p>Company Note</p>
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<h2>Elite Commercial REIT</h2>
<h3>An asset in challenging times</h3>
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<li>FY20 results out performed IPO forecasts with gross revenue/DPU inline with our expectations, at 100%/102% of our FY20F estimates respectively.</li>
<li>We expect footfall to DWP offices to increase as the Jobs Retention Scheme expires, exhibiting countercyclical traits and importance of ECR’s portfolio.</li>
<li>We reiterate our Add call with a higher DDM-based TP of £0.79.</li>
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<p><strong>2H/FY20 results in line; DPU came in above IPO forecasts</strong><br>Elite Commercial REIT (ECR) reported FY20 gross revenue/DPU of £21.0m/4.4 £cts which was -0.1%/2.3% below/above its IPO forecast and formed 100%/101% of our full- year estimates respectively. ECR also reported FY20 NPI of £20.4m which came in at 97% of our full-year estimate and was largely in line with its IPO forecasts. In 2H20, ECR posted gross revenue/DPU of £11.7m/2.5 £cts which was -0.5%/2.9% below/above its IPO forecasts while NPI came in at £11.3m. ECR also registered higher revaluation gains of £15.9m in FY20 largely due to valuation uplift from the property at Lodge House, Bristol. This lifted FY20’s net income to £23.4m (+122% above IPO forecasts).</p>
<p><strong>Greater reliance on DWP as UK Jobs Retention Scheme expires</strong><br>The UK continues to be plagued by Covid-19 uncertainties and unemployment rates are expected to reach 7.5% (Oct 2020: c.5%) by 1H21, according to the Office for National Statistics. With the UK’s Jobs Retention Scheme set to expire in Apr 2021, we expect unemployment rates to rise which will see higher volume of footfall to ECR’s properties as an increasing number of job claimants will seek the Department for Work and Pensions’s (DWP) services. In addition, the leases of the properties at John Street, Sunderland and Lodge House, Bristol have been extended by DWP to 31 Mar 2022/28 respectively, highlighting the unique countercyclical tenant traits in ECR’s properties during times of uncertainty. ECR has indicated that it has received 99.6% of the rent (£5.4m) in advance for 1Q21 as at 31 Dec 2020. We also expect ECR to complete its acquisition of 58 commercial buildings by end-1Q21, which will begin contributing revenue for FY21F. This enhances the portfolio’s cash flows, in our view.</p>
<p><strong>ECR remains well-capitalised with a strong balance sheet</strong><br>In our view, ECR has a healthy debt maturing profile and should not face refinancing risks until FY24F with 50% of its borrowings on a fixed rate and an effective interest rate of 1.9% at end-2020. ECR has an aggregate leverage of 31% and interest coverage ratio of 7.7x with undrawn facilities of £36.8m out of £140m loan facilities at-end 2020.</p>
<p><strong>Reiterate Add with a higher DDM-based TP of £0.79</strong><br>We tweak our FY21-22F DPU by 0.3-1.7% to factor in lower effective interest rates. We keep our Add call with a higher DDM-based TP of £0.79. We like ECR’s stable income profile, with built-in-growth through its inflation-linked rental structure and inorganic growth potential. Re-rating catalysts could come from rental uplifts for the majority of its portfolio in FY23, while downside risks include high tenant exposure to DWP.</p>
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Non- SGX Report: These equity research reports are not written by the SGX.&nbsp;SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.

Company Note




Elite Commercial REIT
An asset in challenging times





FY20 results out performed IPO forecasts with gross revenue/DPU inline with our expectations, at 100%/102% of our FY20F estimates respectively.
We expect footfall to DWP offices to increase as the Jobs Retention Scheme expires, exhibiting countercyclical traits and importance of ECR’s portfolio.
We reiterate our Add call with a higher DDM-based TP of £0.79.





2H/FY20 results in line; DPU came in above IPO forecasts Elite Commercial REIT (ECR) reported FY20 gross revenue/DPU of £21.0m/4.4 £cts which was -0.1%/2.3% below/above its IPO forecast and formed 100%/101% of our full- year estimates respectively. ECR also reported FY20 NPI of £20.4m which came in at 97% of our full-year estimate and was largely in line with its IPO forecasts. In 2H20, ECR posted gross revenue/DPU of £11.7m/2.5 £cts which was -0.5%/2.9% below/above its IPO forecasts while NPI came in at £11.3m. ECR also registered higher revaluation gains of £15.9m in FY20 largely due to valuation uplift from the property at Lodge House, Bristol. This lifted FY20’s net income to £23.4m (+122% above IPO forecasts).
Greater reliance on DWP as UK Jobs Retention Scheme expires The UK continues to be plagued by Covid-19 uncertainties and unemployment rates are expected to reach 7.5% (Oct 2020: c.5%) by 1H21, according to the Office for National Statistics. With the UK’s Jobs Retention Scheme set to expire in Apr 2021, we expect unemployment rates to rise which will see higher volume of footfall to ECR’s properties as an increasing number of job claimants will seek the Department for Work and Pensions’s (DWP) services. In addition, the leases of the properties at John Street, Sunderland and Lodge House, Bristol have been extended by DWP to 31 Mar 2022/28 respectively, highlighting the unique countercyclical tenant traits in ECR’s properties during times of uncertainty. ECR has indicated that it has received 99.6% of the rent (£5.4m) in advance for 1Q21 as at 31 Dec 2020. We also expect ECR to complete its acquisition of 58 commercial buildings by end-1Q21, which will begin contributing revenue for FY21F. This enhances the portfolio’s cash flows, in our view.
ECR remains well-capitalised with a strong balance sheet In our view, ECR has a healthy debt maturing profile and should not face refinancing risks until FY24F with 50% of its borrowings on a fixed rate and an effective interest rate of 1.9% at end-2020. ECR has an aggregate leverage of 31% and interest coverage ratio of 7.7x with undrawn facilities of £36.8m out of £140m loan facilities at-end 2020.
Reiterate Add with a higher DDM-based TP of £0.79 We tweak our FY21-22F DPU by 0.3-1.7% to factor in lower effective interest rates. We keep our Add call with a higher DDM-based TP of £0.79. We like ECR’s stable income profile, with built-in-growth through its inflation-linked rental structure and inorganic growth potential. Re-rating catalysts could come from rental uplifts for the majority of its portfolio in FY23, while downside risks include high tenant exposure to DWP.

















(Non-SGX Report) Elite Commercial REIT: An Asset in Challenging Times

<div><em><strong>Non- SGX Report: These equity research reports are not written by the SGX</strong>.&nbsp;SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.</em></div>
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<p>COMPANY UPDATE</p>
<h2>Elite Commercial REIT (ELITE SP)</h2>
<h3>Maiden Acquisition Diversifies Mix Of Sovereign Tenants</h3>
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<p>Elite has announced its first acquisition since listing, of 58 commercial buildings for £212.5m. About 36% of the new properties are in London, and this will increase Elite’s London portfolio exposure to 14%, provide higher potential growth for rent and capital values as well as opportunities for future redevelopment. Maintain BUY and target price of £0.88.</p>
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<p>WHAT’S NEW</p>
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<p><strong>Scaling up in the UK.</strong> Elite Commercial REIT (Elite) has entered into a conditional share purchase agreement with Elite Bushel Holding Ltd, a subsidiary of Elite UK Commercial Fund II, to acquire 58 commercial properties located across the UK for £212.5m. The new properties have a total NLA of 1.3m sf and are 100% occupied with a WALE of 7.4 years. The acquisition is expected to complete in Dec 20. The enlarged portfolio will boost Elite’s portfolio size by 67%.</p>
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<p><strong>Acquisition will diversify tenant mix.</strong> The new properties will introduce new sovereign tenants, including the UK Ministry of Defence, National Records of Scotland, HM Courts &amp; Tribunal Service and National Resources Wales. The new properties are 82% occupied by the DWP and 17% by the above-mentioned tenants. This will diversify Elite’s tenant mix while maintaining its focus on quality UK sovereign credit.</p>
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<p><strong>All the leases are on a full repairing and insuring basis (triple net).</strong> About 80% of the leases by gross rental income have CPI-linked rental escalations (cap and collared between 1% and 5%). The portfolio has an average weighted lease expiry (WALE) of 7.4 years.</p>
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<p>I<strong>ncreased exposure to London.</strong> About 36% of the new properties are in London, which expands Elite’s exposure in London to 14% of its AUM. London recorded the highest percentage increase of 128.8% in Universal Credit claimants in Jan-Aug 20, reflecting the continued reliance in JobCentres in the area. London properties also have higher growth potential for rents and capital values than the national average. According to Colliers, London commercial properties have recorded strong growth in capital values of 7.7% vs the country’s average of 5.4%. over the past 10 years.</p>
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<p><strong>Acquisition expected to be DPU-accretive.</strong> Management expects the acquisition to DPU-accretive by 3.2%. The acquisition will be financed by the proposed issuance of consideration units to the vendors, totalling £89.4m (minimum price of £0.68 per unit), equity fund raising of £30m and borrowings of £96m. Post-acquisition, Elite is expected to see a 66.6% increase in portfolio valuation as well as a 59.1% increase in net property income.</p>
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Non- SGX Report: These equity research reports are not written by the SGX.&nbsp;SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.

COMPANY UPDATE
Elite Commercial REIT (ELITE SP)
Maiden Acquisition Diversifies Mix Of Sovereign Tenants



Elite has announced its first acquisition since listing, of 58 commercial buildings for £212.5m. About 36% of the new properties are in London, and this will increase Elite’s London portfolio exposure to 14%, provide higher potential growth for rent and capital values as well as opportunities for future redevelopment. Maintain BUY and target price of £0.88.



WHAT’S NEW






Scaling up in the UK. Elite Commercial REIT (Elite) has entered into a conditional share purchase agreement with Elite Bushel Holding Ltd, a subsidiary of Elite UK Commercial Fund II, to acquire 58 commercial properties located across the UK for £212.5m. The new properties have a total NLA of 1.3m sf and are 100% occupied with a WALE of 7.4 years. The acquisition is expected to complete in Dec 20. The enlarged portfolio will boost Elite’s portfolio size by 67%.


Acquisition will diversify tenant mix. The new properties will introduce new sovereign tenants, including the UK Ministry of Defence, National Records of Scotland, HM Courts &amp; Tribunal Service and National Resources Wales. The new properties are 82% occupied by the DWP and 17% by the above-mentioned tenants. This will diversify Elite’s tenant mix while maintaining its focus on quality UK sovereign credit.


All the leases are on a full repairing and insuring basis (triple net). About 80% of the leases by gross rental income have CPI-linked rental escalations (cap and collared between 1% and 5%). The portfolio has an average weighted lease expiry (WALE) of 7.4 years.


Increased exposure to London. About 36% of the new properties are in London, which expands Elite’s exposure in London to 14% of its AUM. London recorded the highest percentage increase of 128.8% in Universal Credit claimants in Jan-Aug 20, reflecting the continued reliance in JobCentres in the area. London properties also have higher growth potential for rents and capital values than the national average. According to Colliers, London commercial properties have recorded strong growth in capital values of 7.7% vs the country’s average of 5.4%. over the past 10 years.


Acquisition expected to be DPU-accretive. Management expects the acquisition to DPU-accretive by 3.2%. The acquisition will be financed by the proposed issuance of consideration units to the vendors, totalling £89.4m (minimum price of £0.68 per unit), equity fund raising of £30m and borrowings of £96m. Post-acquisition, Elite is expected to see a 66.6% increase in portfolio valuation as well as a 59.1% increase in net property income.







(Non-SGX Report) Elite Commercial REIT: Maiden Acquisition Diversifies Mix Of Sovereign Tenants

<p><em><strong>Non- SGX Report: These equity research reports are not written by the SGX.</strong>&nbsp;SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.</em></p>
<h2>Elite Commercial REIT</h2>
<h3>First milestone acquisition</h3>
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<li>Milestone acquisition enlarges property portfolio valuation by c.67%to £531m.</li>
<li>Acquisition is DPU accretive and increases portfolio exposure to London.</li>
<li>Reiterate Add rating with a higher&nbsp; DDM-based&nbsp; TP of £0.781.</li>
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<p><strong>Enlarged property portfolio contributes to organic rental growth</strong><br>Elite Commercial REIT (ECR) announced that it has entered into a conditional share purchase agreement with Elite Bushel Holding Limited to acquire 58 commercial properties located across the UK. The new properties are 100% occupied with a WALE of 7.4 years and have a total NLA of c.1.3m sq ft which are well located within city centres, town centres, and transport hubs. An estimated 80% of the leases by gross rental income (GRI) have CPI-linked rental escalations capped and collared from 1%-5%. The total acquisition outlay is estimated to be £218.5m including fees, and is expected to be completed in Dec 2020.</p>
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<p><strong>Diversification of occupier mix and increased exposure to London<br></strong>With this acquisition, 82% of the existing portfolio by both NLA and GRI will be occupied by the anchor tenant DWP and 17% will be occupied by five new UK sovereign tenants which include prominent agencies such as the Ministry of Defence. In our view, we believe the introduction of five new sovereign-tenants raises the diversification profile of ECR’s occupier mix and extends the REIT’s exposure to high quality government tenants to bring total portfolio WALE to 7.5 years. Additionally, 36% of the new properties’ portfolio are located in London, bringing ECR’s exposure in the area to 14% of its total AUM. According to Colliers, London commercial properties have demonstrated strong capital growth of 7.7%-8.1% versus the UK average of 5.4% over the past decade. Given London’s strategic importance to the UK, we believe that having a sizeable portion of ECR’s assets there will allow the portfolio to enjoy long-term rental and capital growth potential as well as redevelopment opportunities.</p>
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<p><strong>Accretive acquisition raises ECR’s size and market capitalisation</strong><br>According to management, the proposed acquisition is expected to be DPU accretive, with a proforma 3.2% increase to 2.02 pence, assuming the deal is financed via the proposed issuance of consideration units to the vendors (£89.4m), equity fund raising (£30m) and debt. According to management, the gearing of the enlarged portfolio is expected to increase from 32.6% to 37.7% as at end-Jun 2020. ECR’s total property portfolio valuation and market capitalisation are expected to expand 66.6% to £531.6m and 57.0% to £334.8m, respectively, raising the stability, liquidity and overall attractiveness of the REIT in our view.</p>
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<p><strong>Reiterate Add rating</strong><br>We raise FY21-22F DPU by 3.01-3.05% as we factor contributions from the new acquisitions into our projections. We reiterate our Add rating on ECR, with a higher DDM- based TP of £0.781, assuming contributions from the new portfolio from FY21F. We continue to like ECR for its stable income profile, with built-in growth through its inflation- linked rental structure and inorganic growth potential. Upside catalysts could come from rental uplifts for the majority of the portfolio in FY23, while downside risks include high tenant exposure to DWP.</p>
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Non- SGX Report: These equity research reports are not written by the SGX.&nbsp;SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.
Elite Commercial REIT
First milestone acquisition



Milestone acquisition enlarges property portfolio valuation by c.67%to £531m.
Acquisition is DPU accretive and increases portfolio exposure to London.
Reiterate Add rating with a higher&nbsp; DDM-based&nbsp; TP of £0.781.



Enlarged property portfolio contributes to organic rental growth Elite Commercial REIT (ECR) announced that it has entered into a conditional share purchase agreement with Elite Bushel Holding Limited to acquire 58 commercial properties located across the UK. The new properties are 100% occupied with a WALE of 7.4 years and have a total NLA of c.1.3m sq ft which are well located within city centres, town centres, and transport hubs. An estimated 80% of the leases by gross rental income (GRI) have CPI-linked rental escalations capped and collared from 1%-5%. The total acquisition outlay is estimated to be £218.5m including fees, and is expected to be completed in Dec 2020.

Diversification of occupier mix and increased exposure to London With this acquisition, 82% of the existing portfolio by both NLA and GRI will be occupied by the anchor tenant DWP and 17% will be occupied by five new UK sovereign tenants which include prominent agencies such as the Ministry of Defence. In our view, we believe the introduction of five new sovereign-tenants raises the diversification profile of ECR’s occupier mix and extends the REIT’s exposure to high quality government tenants to bring total portfolio WALE to 7.5 years. Additionally, 36% of the new properties’ portfolio are located in London, bringing ECR’s exposure in the area to 14% of its total AUM. According to Colliers, London commercial properties have demonstrated strong capital growth of 7.7%-8.1% versus the UK average of 5.4% over the past decade. Given London’s strategic importance to the UK, we believe that having a sizeable portion of ECR’s assets there will allow the portfolio to enjoy long-term rental and capital growth potential as well as redevelopment opportunities.



Accretive acquisition raises ECR’s size and market capitalisation According to management, the proposed acquisition is expected to be DPU accretive, with a proforma 3.2% increase to 2.02 pence, assuming the deal is financed via the proposed issuance of consideration units to the vendors (£89.4m), equity fund raising (£30m) and debt. According to management, the gearing of the enlarged portfolio is expected to increase from 32.6% to 37.7% as at end-Jun 2020. ECR’s total property portfolio valuation and market capitalisation are expected to expand 66.6% to £531.6m and 57.0% to £334.8m, respectively, raising the stability, liquidity and overall attractiveness of the REIT in our view.






Reiterate Add rating We raise FY21-22F DPU by 3.01-3.05% as we factor contributions from the new acquisitions into our projections. We reiterate our Add rating on ECR, with a higher DDM- based TP of £0.781, assuming contributions from the new portfolio from FY21F. We continue to like ECR for its stable income profile, with built-in growth through its inflation- linked rental structure and inorganic growth potential. Upside catalysts could come from rental uplifts for the majority of the portfolio in FY23, while downside risks include high tenant exposure to DWP.













Non-SGX Report: Elite Commercial REIT: First Milestone Acquisition

Singapore

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

Elite REIT’s portfolio (“Portfolio”) comprises predominantly freehold properties strategically located mainly in town centres, and near amenities and transportation nodes. The Portfolio offers a stable government-backed income stream with over 99% of the gross rental income derived from the UK Government, backed by AA-rated sovereign credit strength. The leases are on triple net basis(1) and Elite REIT is one of the largest provider of critical social infrastructure to the Department for Work & Pensions (“DWP”) and other UK Government departments. The DWP is the UK’s largest public service department that is responsible for welfare, pensions and child maintenance, serving over 20 million claimants. The Portfolio is part of the crucial social infrastructure through which the DWP provides services to local communities.

Note:
1.	Known as a full repairing and insuring lease, the responsibility for the repair of the external and internal parts as well as the structure of the property is placed with the tenant for occupied assets.

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