After the announcement of Elite Commercial REIT seeking to raise GBP28 million ($47.2 million) through a preferential offering, PhillipCapital has maintained their “buy” call with an unchanged target price of 0.36 GBP pence.
The REIT intends to issue 103,354,690 new units on the basis of the 214 preferential offering units for every 1,000 existing units, in order to raise gross proceeds of GBP28 million.
This will be allocated towards debt repayment, as the REIT aims to decrease the overall leverage by 6.1% to 43.5%.
According to PhillipCapital, GBP1.0 million (about 3.6% of the gross proceeds) will be funneled to pay for the fees and expenses. Sunway RE Capital intends to subscribe for any excess undertaking units left after the pro rata units, maximum of about GBP16.1 million to 14.9% unitholding (+ 9.1%).
Analyst Liu Miaomiao of PhillipCapital says that there are two positives from this raise. A maximum of GBP24.7 million (88.6% of the total proceeds) will be subscribed by sponsors and substantial unitholders of Elite Commercial REIT and the remaining balance will receive full underwriting from the Singapore branch of CGS-CIMB Securities and RHB Bank.
In addition, there will be an increase in pro forma distributable income on the back of interest savings from debt reduction.
“Of the proceeds, 96.4% will be allocated to repay debt, aiming to reduce the aggregate leverage to 43.5%. This strategy will result in a pro forma interest expense savings of GBP1.1 million. Consequently, the distributable income for the nine months ending in Sept 2023 is projected to increase from GBP13.6 million to GBP14.7 million,” says Liu.
However, upon completion of the preferential offering, the analyst notes that the share base is projected to increase by 21.4% to 586,320,534 units. Consequently, the net asset value (NAV) per share is anticipated to decrease to 0.4 pence (compared to 0.43 pence in December 2023).
On that vein, the distribution per unit (DPU) will also be projected to drop 11.3% to 2.5 pence from 2.82 pence as the share base expands, Liu says.
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As Elite Commercial REIT is currently trading at FY2024 yields of 13.2% and 0.73x p/nav, Liu has incorporated the effects of these transactions into her calculations and continues to maintain her forecasts.
“Potential redevelopment plan such as student accommodation or data centre may take place given the enlarged debt headroom of about GBP58 million. Our dividend discount model-target price remains unchanged at 0.36 pence, with projected FY2024-FY2024 DPUs of 4.16 – 4.72 pence,” says Liu.
As at 1.25pm, units in Elite Commercial REIT are trading 0.005 GBP pence lower or 1.69% down at 0.29 GBP pence.
