Singapore-based private equity firm, Elite Partners Capital, acquired a portfolio of 97 commercial properties across the UK last November. The portfolio, worth £282.15 million ($492.82 million), was purchased from Telereal Trillium, one of the largest privately-owned property firms in the UK.
All except one of the 97 properties in theportfolio have freehold tenures. The 97th property has a 250-year lease. About 85% of the office buildings are located in town centres and have a combined floor area of 2.6 million sq ft. About 99.4% of the rental income in the portfolio is secured against the covenant of the UK Secretary of State for Communities and Local Government. The remaining 0.6% in the portfolio is leased to shops, F&B and other amenities that serve the office users.
The portfolio is currently let to the UK’s largest government department, namely the Department for Work and Pensions. The lease is for 10 years with effect from April 1, 2018. “We were exploring logistics properties in Europe when we chanced upon this portfolio of assets in the UK,” says Victor Song, CEO and managing director of Elite Partners Capital. “I thought these UK office assets would provide sustainable returns to our investors given the good covenant strength, predominantly freehold tenure of the portfolio and the fact that the properties are diversified across the UK – from London, to East and West Midlands, the South and even to Glasgow, Scotland in the north.”
Land banking, asset enhancement
About 36% of the portfolio by income is situated in London, the South and the Midlands. Another 26% of the portfolio is located in Scotland, including a major asset in Glasgow City Centre. The portfolio has cash-on-cash returns of about 11% and running yield of 8.3% per annum. It has potential for further gains with built-in rent uplifts in the range of 1% to 5%, asset enhancement and redevelopment. Some of the buildings in the portfolio sit on huge plots of land that have yet to be fully developed, while others are located near public transport facilities such as train stations or bus interchange, notes Song. The portfolio therefore presents opportunities for land banking, asset enhancements and hence, capital gains, he adds. The acquisition is the first significant transaction by Elite Partners’ Singapore-domiciled Elite UK Commercial Fund, which focuses on UK commercial real estate. To date, the fund has raised £120 million ($216 million) in equity and mezzanine funding from more than a dozen prominent institutional investors, family offices and ultra-high net worth individuals. The fund life is five years.
No doubt, the uncertainty around Brexit is disconcerting to investors. However, Song says, “Short-term volatility surrounding the Brexit develoments are within our expectations.” He adds, “We do see interesting opportunities and entry points in times like this. We maintain a long-term view in real estate investments and we do conduct fundamental and in-depth analysis on potential enhancement opportunities in our investments.”
Song’s intention is to “bulk up” by purchasing more commercial properties in the UK tofurther increase the assets under management (AUM) to about $700 million to $800 million. “We have a handful of potential acquisition targets in the pipeline, with deal size varying between £130 million and £180 million and we are in active discussions with the vendors,” says Song. “We are making a site visit to two of those in the pipeline this week before making a firm offer.” The group is also exploring the possibility of setting up a REIT. If successful, it will be the first UK commercial REIT to be listed on the Singapore Exchange.
Song is no stranger to setting up REITs. He was the head of asset management and investment director at Viva Industrial Trust (VIT) before its merger with ESR-REIT last April to become the fourth largest Singapore-listed industrial REIT with $3 billion in assets. VIT was subsequently delisted in October 2018.
While at VIT, he formulated the business plans for the REIT’s properties and was involved in acquisitions and divestments. Prior to joining VIT, he was the sole proprietor of VS Real Estate, and was responsible for managing real estate-related contracts. Before that, Song was in the investment team of Cambridge Industrial Trust Management, where he was also involved in investment strategies.
Song co-founded Elite Partners with Chiew Chuanjin and Charles Hoon in 2017. Chiew is executive director and CFO of the firm, while Hoon is executive director and COO. The team has a total of nine staff as at end-2018, and is expanding to “15 to 20” this year.
Opportunities in Belt and Road Initiative
Besides the Elite UK Commercial Fund, Elite Partners is exploring the launch of a European Logistics Fund which will invest in assets that will benefit from the Belt and Road Initiative. Proposed by China in 2017, the Belt and Road Initiative will see the development of transportation hubs, new railway routes and ports across parts of Asia and Europe. The rationale is that it will enhance connectivity in Eurasia, and boost trade and investments in infrastructure construction.
The fund will acquire logistics properties, warehouses and distribution centres around Europe, he adds. “We have already started buying assets for this portfolio since March 2018.”
Investments include five plots of land in Poland, which have been amalgamated, with plans to build two logistics blocks on the site. The intention is to develop and also to purchase existing assets with ready yields, explains Song. The group raised seed funding of €30 million ($46.4 million) which has already been invested, and it intends to grow the fund’s portfolio size to €400 million to €500 million range, he adds.
Elite Partners has also launched the Elite InNorvate Growth Fund, which works closely with Norwegian government agencies to identify and co-invest in promising start-up companies in Norway. The fund will focus on companies involved in sectors such as clean energy, ocean space, healthcare and welfare, smart cities, bio-economy, creative industries and tourism. Emily Goh, Elite Partners’ portfolio director is overseeing the Elite InNorvate Growth Fund.
Another fund by Elite Partners is the Excelon Structured Trade Income Fund that invests in short-term trade financing and arbitrage opportunities, particularly in metals traded on the London Metal Exchange (LME). Elite Partners acted as sub-investment manager of the fund. “We have been gradually returning capital and profits to the investors upon maturity of our investments,” says Goh.
“The idea is to focus on alternative investments, and to create opportunities for investors who want to diversify their portfolios,” says Elite Partners’ CFO, Chiew. “We try to provide a range of products with different risk profiles for investors who want to gain exposure to non-traditional assets.”
Song concurs. “Our expertise is in real estate and alternative investments,” he adds. “We are able to identify opportunities for investors and structure products to provide a secured return on their investments.”
In Singapore, Elite Partners is exploring the possibility of investing in a logistics hub in Jurong, which will be a halal food hub. According to Song, the group is looking for a suitable site with a 30-year lease from industrial landlord JTC Corp.
Today, Elite Partners is managing about $560 million of AUM. The intention is to grow it to about $1 billion by end of the year, says Song