Elite UK REIT announced a modest acquisition of three “counter-cyclical” properties for GBP9.2 million, and a fully-underwritten private placement of GBP4 million to partly fund the acquisition. The private placement, at a price of GBP0.295 to GBP0.305 has an upsize option to GBP8 million. CIMB Bank Berhad, Singapore Branch, Maybank Securities and RHB Bank Berhad, through its Singapore office, have been appointed as the joint bookrunners and underwriters for the private placement.
The accretion to distributions per unit (DPU) is 0.6% at GBP4 million, but is dilutive if the private placement is upsized to GBP8 million. The DPU assumes approximately 13,33 million private placement units, at GBP0.300 per unit; around 306,667 units are issued to the manager for acquisition fees also at GBP0.30 per unit; and pro forma distribution takes into account a 90% payout ratio for 1HFY2024 and 95% for 2HFY2024.
Pro forma aggregate leverage will fall by 20 basis points from 43.4% to 43.2% taking it closer to the stated target of below 40%.
In a briefing on June 10, Joshua Liaw, CEO of Elite UK REIT’s manager, says the REIT will have other uses for the funds raised if the placement is upsized.
“If the placement raises GBP6 million, it will be slightly diluted at 0.5% or 0.6% (to DPU). If the placement raises GBP8 million, the DPU will be diluted by 1.6%. We have already announced a few initiatives, one being AEI. We're reasonably confident that we can probably put those funds to good use in the next 6 to 12 months. We also have been keeping a very close watch for other potential acquisitions in the government [space], as well as the living space. There are assets to buy that are accretive with our cost of capital,” Liaw elaborates.
In addition to being DPU accretive, the gross rental income (GRI) yield of the three properties average 9.2% compared with the GRI yield of the portfolio at 9%. In addition, weighted average lease expiry (WALE) of the properties are 7.4 years, extending the portfolio’s pro forma WALE to 3.2 years from 3.1 years.
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Although the transaction is an interested party transaction, the net profit of the proposed transaction is less than 20% of Elite UK REIT’s net profit, and the transaction value is less than 5% of Elite UK REIT’s NAV, an EGM is not required.
Jonathan Edmunds, chief investment officer for Elite UK REIT’s manager, says the properties are either port-related or rural infrastructure-related.
“These facilities are part of mission critical infrastructure in UK where the tenant is most likely to remain in occupancy on a long term basis,” Edmunds says..
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Customs House, Felixstowe, is occupied by the Border Force, the law enforcement arm of the Home Office responsible for customs control of people and goods entering through the Port of Felixstowe. “The tenant recently signed a new lease, extending WALE to 2031 for the first break and 2036 for lease expiry,” Edmunds adds.
Priory Court, Dover has similar characteristics. “There was a recent lease extension to 2031 and there are opportunities to increase the lease length. We believe these assets will be leased on a very long-term basis to the UK government,” Edmunds says.
According to him current rents are less than GBP5 psf pa. ““The properties are potentially quite significantly under-rented for both Customs House and The Priory. For The Priory, rents are GBP4.50 psf pa and at Customers House, GBP 4.85 psf pa.
The third property, Tŷ Merlin, Carmarthen, Wales, is leased to the Department of Environment, Food and Rural Affairs (DEFRA). “A lease break was taken out of the property and the tenant will remain in occupancy till 2030,” Edmunds says.
Elite UK REIT closed at GBP0.34 on June 10.
