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Tuesday, August 17, 2021

Elite Commercial REIT Review @ 17 August 2021

Basic Profile & Key Statistics

Elite Commercial REIT (Elite) is an office REIT that owns 155 properties in U.K.

Performance Highlight

Actual performance is better than IPO forecast mainly due to the contribution from the newly acquired portfolio that was completed on 9 March. The DPU of 1.73 pence for the period of 9 March to 30 June 2021 is equivalent to around 1.39 pence for 1 quarter., which means increased by 14.9% YoY.

The lease break for East Street Epsom has been exercised and Elite received a buy offer at 21% above valuation. The manager is reviewing the offer.

Related Parties Shareholding

  • REIT sponsor's shareholding is low at 6.4%
  • REIT manager's shareholding is high at 1.4%
  • Directors of REIT manager's shareholding is high at 10.76%

Lease Profile

  • Occupancy is high at 100%
  • WALE is long at 6.6 years
  • Highest lease expiry within 5 years is low at 1.3% which falls in 2022
  • Almost all properties are freehold or longer than 99 years remaining land tenure

Debt Profile

  • Gearing ratio is high at 42.1%
  • Cost of debt is low at 1.9%
  • Fixed rate debt % is low at 63%
  • All debts are secured debts
  • WADM is short at 2.5 years
  • Highest debt maturity within 5 years is high at 55.3% which falls in 2024
  • Interest coverage ratio is high at 6.4 times

Diversification Profile

  • Top geographical contribution is low at 13.3% 
  • Top property contribution is low at 9.3% 
  • Top 5 properties contribution is low at 26.2% 
  • Top tenant contribution is high at 95.4% 
  • Top 10 tenants contribution is high at 100%

Key Financial Metrics

  • Property yield is high at 6.8% 
  • Management fees over distribution is low at 10% in which unitholders receive S$ 10 for every dollar paid 
  • Distribution on capital is high at 4.8%
  • Distribution margin is high at 70.8%

Trends

  • Uptrend - DPU
  • Slight Uptrend - NAV per Unit
  • Flat - Distribution Margin
  • Slight Downtrend - Interest Coverage Ratio
  • Downtrend - Property Yield, Distribution on Capital

Relative Valuation

  • P/NAV - Average for 1y and 3y
  • Dividend Yield - Average for 1y and 3y

Author's Opinion

 Favorable Less Favorable
High REIT Manager's ShareholdingLow REIT Sponsor's Shareholding
High Directors of REIT Manager's ShareholdingHigh Gearing Ratio
High OccupancyLow Fixed Rate Debt %
Long WALE0% Unsecured Debt
No Major Lease Expiry within 5 YearsShort WADM
Almost 100% Freehold PropertiesConcentrated Debt Maturity
Low Cost of DebtHigh Top Tenant & Top 10 Tenants Contributions
High Interest Coverage RatioProperty Yield Downtrend
Low Top Geographical ContributionDistribution on Capital Downtrend
Low Top Property & Top 5 Properties Contributions 
High Property Yield 
Competitive Management Fees 
High Distribution on Capital 
High Distribution Margin 
DPU Uptrend
Elite fundamentals and performance have been improved due to the recent acquisition. Although the WALE is long with 92.9% (by rent) lease expiry in 2028, do note that there is 63.7% (by rent) lease break in 2023 (mainly March 2023) where tenants could exercise the break clause to end the lease sooner. The notice period to exercise the break clause is one year, which the manager should know the tenants' decision by March 2022. From the IPO prospectus, the manager believes that 80% - 90% of the break clause would not be exercised.

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*Disclaimer: Materials in this blog are based on my research and opinion which I don't guarantee accuracy, completeness, and reliability. It should not be taken as financial advice or a statement of fact. I shall not be held liable for errors, omissions and loss or damage as a result of the use of the material in this blog. Under no circumstances does the information presented on this blog represent a buy, sell, or hold recommendation on any security, please always do your own due diligence before any decision is made.

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