Preferential Offering 121% oversubscribed reflects confidence in the REIT
- Preferential Offering was well-received and came in oversubscribed at 121%
- Gearing set to improve to 43.5%; FY24F DPU could see c.13% decline
- We see it as a small trade-off for a stronger foundation to grow
- Maintain HOLD, TP under review
Preferential Offering was 121% oversubscribed. Elite Commercial REIT (Elite) launched a Preferential Offering in Dec-23 to raise gross proceeds of GBP28m mainly to repay debt and reduce gearing, which was extremely well-received and came in oversubscribed at 121%. The Preferential Offering Units, comprising 103,354,690 new units in Elite REIT, were offered to existing unitholders at a ratio of 214 Preferential Offering Units for every 1,000 existing units in Elite REIT, at an issue price of £0.27 per Preferential Offering Unit. Sponsor Elite Partners showed strong support and subscribed to its pro rata provisional allotment of the units while Sponsor Sunway RE Capital further subscribed for excess units. The Manager expects the Preferential Offering units to be listed and quoted on the Mainboard of the SGX-ST with effect from 9.00 a.m. on 18 January 2024.
Small trade-off for a stronger foundation to grow. We are encouraged by the better-than-expected response received on the Preferential Offering, reflecting the confidence of both Unitholders and Sponsors in the REIT’s long-term trajectory. With gearing set to decline from 49.6% (close to MAS limit of 50%) to a more comfortable level of 43.5%, we believe this is a big step in the right direction that has addressed the elephant in the room. Investors can be relieved with the bigger buffer, which has been a key concern given the cap rate expansion in the UK. While overall quantum is small, we are more comfortable with its financial metrics post-preferential offering (gearing of c.43.5%, ICR of c.2.9x), which we believe will support share price. Though FY24F DPU could see a c.15% decline, we see it as a small trade-off for a stronger foundation to grow. The next key thing to watch out for would be the refinancing this year and we anticipate that the overhang on the share price will be lifted once we get some visibility. Other near-term catalysts include: 1) Divestments; 2) Increasing asset valuations through conversion to alternative uses and diversifying/extending leases; and 3) A reinstatement of distribution payout ratio to 100%.
Maintain HOLD, TP under review.