Elite Commercial REIT - CGS-CIMB Research 2021-04-23: Portfolio Income Stability Enhanced


Elite Commercial REIT - Portfolio Income Stability Enhanced

  • Elite Commercial REIT's 1QFY21 revenue and DPU in line with our forecasts. Properties from its maiden acquisition have begun contributing to portfolio cash flow.
  • We expect the 58 new properties to generate additional source of recurring cash flows to the portfolio from FY21F, boosting Elite Commercial REIT’s stable income profile.
  • Reiterate ADD, with unchanged DDM-based target price of £0.79.

Elite Commercial REIT's 1QFY21 results in line with our expectations

  • Elite Commercial REIT (SGX:MXNU) reported 1QFY21 revenue of £6.6m (+87.6% y-o-y) which represented 17% of our FY21F estimate and was 15.1% higher than its Initial Public Offering (IPO) forecast, helped by initial contributions of ~£0.9m from its maiden acquisition portfolio. Stripping out the acquisition portfolio, revenue would be £5.7m in 1QFY21, in line with our expectations, forming 25% of full-year estimates.
  • Elite Commercial REIT's DPU came in at 1.22 pence (+64.9% y-o-y) [includes advance distribution of 0.9 pence declared on 26 Feb 21], forming 25% of our full-year estimate and 1.8% higher than its IPO forecasts.

Acquisition completed enlarging total portfolio to 155 assets in UK

  • Elite Commercial REIT completed its £212.5m maiden acquisition of 58 commercial properties on 9 Mar 21 to enlarge the REIT’s portfolio to 155 UK assets with a total portfolio valuation of £515.3m and a long WALE of 7.2 years at end-1QFY21.
  • Elite Commercial REIT also registered a valuation uplift of £15.9m from the properties after removal the lease break clauses. The acquisition raised Elite Commercial REIT’s exposure to London to 14% of total portfolio valuation and saw the inclusion of other high quality government tenants, helping it diversify its tenant mix, in our view.
  • According to the manager, Elite Commercial REIT has a 100% occupancy rate and received in advance 99.9% of its 2QFY21 rent as of end-1QFY21.
  • Going forward, Elite Commercial REIT will continue to seek inorganic growth that could potentially add new assets to its portfolio from its sponsor’s pipeline or from third-party acquisitions in FY21F, according to the manager.

Elite Commercial REIT remains well capitalised with a strong balance sheet

  • Elite Commercial REIT continues to maintain a healthy debt maturing profile with a bridge loan of £9m due in FY22F and will not face major refinancing risks until FY23F, in our view. The REIT has 63% of its borrowings on a fixed rate and effective interest rate of ~1.9% as at end- 1QFY21F.
  • While Elite Commercial REIT’s aggregate leverage has risen to 42.1% due to debt undertaken for its acquisition, we understand from management that the REIT has the flexibility to tap on sources of funding to lower its gearing ratio to below 40%. Elite Commercial REIT has an interest coverage ratio of 7.4x and £6m in undrawn capacity.

Reiterate ADD with unchanged DDM-based target price of £0.79

LOCK Mun Yee CGS-CIMB Research | Darren ONG CGS-CIMB Research | https://www.cgs-cimb.com 2021-04-23
SGX Stock Analyst Report ADD MAINTAIN ADD 0.792 SAME 0.792