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


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's 1H21 results highlights

  • 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.

Portfolio income visibility enhanced; occupancy remains at 100%

  • 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 remains well capitalised with a strong balance sheet

  • 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.

Reiterate ADD on Elite Commercial REIT with a DDM-based target price of £0.83

LOCK Mun Yee CGS-CIMB Research | Darren ONG CGS-CIMB Research | https://www.cgs-cimb.com 2021-08-03
SGX Stock Analyst Report ADD MAINTAIN ADD 0.792 SAME 0.792