An interesting Q3 update (see below)

The Adelaide asset is the smallest asset in the portfolio, but it now has a WALE of almost 8 years and was on the books at a 7.75% cap rate. I wonder if they will contemplate divesting now?

And then there is Pyrmont. The poison pill. It must be extremely close to breaching its covenants (which ECF isn't directly exposed to as it only owns 49%). Why Elanor thought buying this was a good idea beats me. Anyway, it's unclear how bad things actually are. Reuters originally occupied around 6,000 sqm. I believe that of the 4,000sqm that they aren't renewing on, a small portion of it has already been surrendered an re-leased. The rent that Reuters was paying was also well below market. If the space can be leased at a market rent, it will bode well for the valuation and long term cashflow. They've got until Feb 25 for the lease to expire so hopefully they can re-lease the space without much downtime.

Well - an announcement similar to todays announcement wasn't completely unexpected (see my valuation) however the details of this transaction are particularly interesting.

To me it seems like Elanor initially intended to raise the funds for this asset from wholesale/sophisticated investors only. I am aware that EOI's were sent to Wholesale investors in early Feb. Whether it was Elanor's intention to raise some of these funds from ECF the whole time remains unclear. I'm happy NTA and distribution guidance have both been maintained. I do however wonder whether unitholders will get charged fees in both the listed vehicle and the syndicate..

The investment itself seems to be aggressive. a 5.25% cap rate and 4.25% passing yield are very low - considering you can buy a 10 year bond and get 3% at the moment.

In my RL portfolio I will likely participate in the rights offer and sell back into the market - pending market reaction to this announcement.

I will take a while to digest this announcement and update my valuation in the next few months.

Announcement main points below:

Elanor Commercial Property Fund (“ECF” or “Fund”) is acquiring a 49.9% stake in an Elanor Investors Group (“Elanor”) managed fund that will acquire a significant commercial office property located at 19 Harris Street, Pyrmont, NSW (“19 Harris”)

Valued at $185 million, 19 Harris is a high-quality, carbon neutral, commercial office building that meets the requirements of the modern office era

ECF’s investment in the managed fund (“19 Harris Trust”) represents a proportionate NTA value of $41.5 million • Elanor will contribute to the Acquisition through an $8.4 million capital contribution (“Elanor Contribution”) 1 o The Elanor Contribution to the Acquisition results in ECF’s total net purchase price being $35.1 million, reflecting a 15.6% discount to the NTA value of the 19 Harris Trust

As a result, ECF’s NTA per security will be maintained at $1.19 post transaction • ECF launches a fully underwritten 1 for 8 accelerated non-renounceable entitlement offer (“ANREO” or “Offer”) to raise $36.6 million to partially fund the Acquisition