Elite Commercial REIT Review @ 22 February 2023

Basic Profile & Key Statistics

• Main Sector(s): Office
• Country(s) with Assets: England, Scotland & Wales
• No. of Properties (exclude development/associate/fund): 155

Key Indicators

Performance Highlight

Revenue has declined slightly due to the loss of income from two vacant properties. However, distributable income and DPU have dropped significantly mainly due to an increase in finance costs and the manager elected to receive 100% of fees in cash. 

Rental Reversion

Out of 155 properties, 134 properties are expected to have rental escalation between 11.0% and 15.4%. However, 11 would be subjected to rent reductions after the rental escalation. 

Asset Enhancement Initiative

Various AEI works have been planned for DWP-occupied properties to optimize energy use.

Distribution Breakdown

• Distributable Income Breakdown:
• 99.9% from Operation
• 0.1% from Release of Retention/Capital
• Distribution = 100% of Distributable Income

Related Parties Shareholding

• REIT Sponsor's Shareholding: Below median for more than 20%
• REIT Manager's Shareholding: Below median for more than 20%
• Directors of REIT Manager's Shareholding: Above median for more than 20%

Lease Profile

• Occupancy: ± 5% from median
• WALE: Above median for more than 20%
• Highest Lease Expiry within 5 Years: Below median for more than 20%; Falls in this year
• Weighted Average Land Lease Expiry: Majorities are freehold properties with some longer than 99 years remaining land tenure

Debt Profile

• Gearing Ratio: Above median for more than 20%
• Cost of Debt: Above median for more than 20%
• Fixed Rate Debt %: ± 10% from median
• Unsecured Debt %: 0%
• WADM: Below median for more than 20%
• Highest Debt Maturity within 5 Years: Above median for more than 20%; Falls in 2024
• Interest Coverage Ratio: Above median for more than 20%

Diversification Profile

• Top Geographical Contribution: Below median for more than 20%
• Top Property Contribution: Below median for more than 20%
• Top 5 Properties' Contribution: Below median for more than 20%
• Top Tenant Contribution: Above median for more than 20%
• Top 10 Tenants' Contribution: Above median for more than 20%

Key Financial Metrics

• Property Yield: Above median for more than 20%
• Management Fees over Distribution: Below median for more than 20%; $10 distribution for every dollar paid 
• Distribution on Capital: Above median for more than 20%
• Distribution Margin: Above median for more than 20%

Trends

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

Relative Valuation

• P/NAV: Below -1SD for 1y & 3y
• Dividend Yield: Above +1SD for 1y; Above +2SD for 3y

Author's Opinion

Favorable	Less Favorable
High Directors of REIT Manager's Shareholding	Low REIT Sponsor's Shareholding
High Occupancy	Low REIT Manager's Shareholding
Long WALE	High Gearing Ratio
No Major Lease Expiry within 5 Years	High Cost of Debt
Almost 100% Freehold Properties	0% Unsecured Debt
High Interest Coverage Ratio	Short WADM
Low Top Geographical Contribution	Concentrated Debt Maturity
Low Top Property & Top 5 Properties' Contributions	High Top Tenant & Top 10 Tenants' Contributions
High Property Yield	Interest Coverage Ratio Downtrend
Competitive Management Fees	Distribution on Capital Downtrend
High Distribution on Capital	Distribution Margin Downtrend
High Distribution Margin

Compared to the previous half-yearly results, the distributable income has been affected by a range of factors including lower gross revenue, higher property expenses, increased finance costs, and higher tax expenses. Despite these challenges, there is a positive development to look forward to, as rental rates are expected to increase in April 2023. However, due to some properties would have rental reductions and vacancies, the manager expected that the income will remain stable as stated in the presentation, instead of significant improvement.

For more information, check out:

SREITs Dashboard - Detailed information on individual Singapore REIT

SREITs Data - Overview and details of Singapore REIT

REIT Review - List of previous REIT review posts

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*Disclaimer: The information presented on this blog is for educational and informational purposes only. The materials, including research and opinions, are based solely on my findings and should not be considered professional financial advice or a definitive statement of fact. I cannot guarantee the accuracy, completeness, or reliability of the information provided. I shall not be held liable for any errors, omissions, or losses that may occur as a result of using the information presented on this blog. It should be noted that the information presented on this blog does not constitute a buy, sell, or hold recommendation for any security. It is crucial to conduct your own thorough research and due diligence before making any investment decisions.