Elite Commercial REIT - CGS-CIMB Research 2021-08-03: Boost From New Acquisitions

ELITE COMMERCIAL REIT (SGX:MXNU)

Elite Commercial REIT - Boost From New Acquisitions

Elite Commercial REIT's 1H21 DPU of 2.63 £cts was above our estimate, at 53% of our FY21F forecast.
Elite Commercial REIT received an offer to divest its property at East Street Epsom for £2.9m (21% premium), the deal is undergoing due diligence and pending completion
We reiterate our ADD call with a DDM-based target price of £0.83.

Elite Commercial REIT (SGX:MXNU) reported 1H21 gross revenue of £15.9m (+70.6% y-o-y) and NPI of £15.4m (+69.9% y-o-y), boosted by additional contributions of ~£4.4m from its newly acquired portfolio in its maiden acquisition. DPU came in at 2.63 £cts (including advanced distribution of 0.9 pence), up 8.7% y-o-y, and formed 53% of our full year estimate.
Elite Commercial REIT also announced a distribution reinvestment plan in 1H21 where unitholders may elect to receive fully paid units in the REIT instead of cash.

As of 30 Jun 2021, Elite Commercial REIT has received in advance 99.7% of the rent for 3Q21F and the portfolio occupancy continues to be at 100% with 99% exposure by gross rental income to sovereign type tenants in the UK. Elite Commercial REIT experienced two lease events in 1H21 for
1. The Forum, Stevenage which had its lease extended to 31 Mar 2028, enhancing its income visibility, in our view, and
2. the property at East Street Epsom has exercised its lease break option.
However, Elite Commercial REIT has received an offer from an undisclosed buyer to purchase East Street Epsom for £2.9m (21% premium above valuation) which the manager is undergoing due diligence for the offer but is also considering the possibility of asset enhancement initiatives.
With unemployment rates in the UK expected to peak in 3Q21F at 5.5% according to the Bank of England, and the furlough scheme expiring in end-Sep 21, we believe that this will drive claimant footfall and increase reliance on its key tenant DWP, raising relevancy of Elite Commercial REIT’s assets.

Elite Commercial REIT continues to maintain a healthy debt maturing profile and will not face refinancing risks until FY23F, in our view. The REIT has 63% of its portfolio on fixed rate and effective interest rate of ~1.9% at end-1H21. At end-Jun 21, Elite Commercial REIT’s gearing stood at 42.1% with an interest coverage ratio of 6.4x and £6m in undrawn facility.

We lift our FY21-23F DPU estimates for Elite Commercial REIT by 9.6-9.7% as we fine-tune our forecast contributions from the new portfolio acquired in Mar 21 and adjust the weighted average units in issue after the equity fund raising exercise in Mar 21.
We reiterate our ADD call on Elite Commercial REIT with an unchanged DDM-based target price of £0.83.
See
We like Elite Commercial REIT for its stable income profile, with built-in growth through its inflation-linked rental structure and inorganic growth potential. Re-rating catalysts could come from rental uplifts for the majority of its portfolio in FY23F.
Downside risks include tenant exposure to DWP.

LOCK Mun Yee CGS-CIMB Research | Darren ONG CGS-CIMB Research | https://www.cgs-cimb.com 2021-08-03

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