Elite Commercial REIT
Price target:
CGS-CIMB “add” GBP0.781
Maintain ‘add’ on first milestone acquisition
CGS-CIMB’s Lock Mun Yee and Darren Ong have maintained their “add” call on Elite Commercial REIT with a target price of GBP0.781 ($1.38) after its acquisition of over 50 additional commercial properties, up from its previous target price of GBP0.761.
The REIT earlier announced that it has entered into a conditional share purchase agreement with Elite Bushel Holding to acquire 58 commercial properties located across the UK.
The new properties are 100% occupied with a WALE of 7.4 years and have a total NLA of about 1.3 million square feet.
An estimated 80% of the leases by gross rental income (GRI) have CPI-linked rental escalations capped and collared from 1% to 5%. The total acquisition outlay is estimated to be GBP218.5 million including fees, and is expected to be completed in December this year.
With this acquisition, 82% of the existing portfolio by both NLA and GRI will be occupied by the anchor tenant, the UK’s Department of Work and Pensions (DWP). Another 17% will be occupied by five other UK sovereign tenants, which include prominent agencies such as the Ministry of Defence.
Lock and Ong believe the introduction of five new sovereign-tenants “raises the diversification profile” of ECR’s occupier mix and extends the REIT’s exposure to high quality government tenants to bring total portfolio WALE to 7.5 years.
Additionally, 36% of the new properties’ portfolio are located in London, bring- ing ECR’s exposure in the area to 14% of its total assets AUM. According to Col- liers, London commercial properties have demonstrated strong capital growth of 7.7% to 8.1% versus the UK average of 5.4% over the past decade.
Given London’s strategic importance to the UK, they believe that having a sizeable portion of ECR’s assets there will allow the portfolio to enjoy long-term rental and capital growth potential as well as redevelopment opportunities.
The proposed acquisition is expected to be DPU accretive, with a proforma 3.2% increase to GBP0.202, assuming the deal is financed via the proposed issuance of consideration units to the vendors, equity fund raising and debt. Gearing is seen to increase from 32.6% to 37.7% as at end-June and total property portfolio valuation and market capitalisation are expected to expand 66.6% to GBP531.6 million and 57% to GBP334.8 million, respectively, raising the stability, liquidity and overall attractiveness of the REIT. — Lim Hui Jie
