Analysts remain positive on Elite Commercial REIT after its 3QFY2021 ended September business update was announced on Nov 1.
See: Elite Commercial REIT posts 3Q21 DPU of 1.48 pence, 20.3% above IPO projection
DBS Group Research has maintained its “buy” rating for the REIT with an unchanged target price of 80 British pence ($1.47). UBS also retained its “buy” rating and target price of 76 pence. Meanwhile, CGS-CIMB Research kept its “accumulate” call but with a lower target price of 76.9 pence, down from 82.6 pence previously.
CGS-CIMB analysts Lock Mun Yee and Eing Kar Mei highlight that the REIT’s 3Q earnings was boosted mainly by contributions from the new acquisitions and to a lesser extent, a lower effective tax rate with the successful listing of its UK entity, Elite UK Commercial Holdings Ltd, on The International Stock Exchange (TISE).
Its 3QFY2021 distribution per unit (DPU) of 1.48 pence is 20.3% higher y-o-y and in line with Lock and Eing’s expectations at 75.4% of their FY2021 forecast.
The analysts' lower target price is underpinned by a cut in FY2022-2023 DPU estimates by 9.21% to 9.41%, reflecting the manager’s indication it has opted to receive 100% of its fees in cash from FY2022 onwards. “We believe this move will likely result in a lower near-term DPU but could bolster longer-term DPU growth, with less DPU dilution from additional units issued for management fees,” Lock and Eing comment.
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Despite the lower target price, they highlight that the REIT still offers an attractive FY2022 dividend yield of around 7.5%. “We like Elite Commercial REIT’s stable income portfolio, with inbuilt growth through its inflation-linked rental structure and inorganic growth potential,” they state.
For DBS analyst Dale Lai, his target price of 80 pence implies 19% potential upside, with attractive yields between 8% to 8.2% for FY2022 and FY2023.
“Elite Commercial occupies a unique position in the REITs space, where it functions as a social infrastructure, given its 99% exposure to the UK government,” he says in a Nov 2 research note.
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He highlights that there is no impact on the REIT’s rent collection as 100% of rent is collected in advance even during Brexit and UK lockdowns. As such, dividend payout will not be affected by the pandemic.
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UBS analysts Wai Fai Kok and Michael Lim note the REIT’s 3QFY2021 DPU was ahead of their estimates largely due to a favourable funding mix for the last acquisition. “The increase was partly driven by a property rent review and tax savings from a successful technical listing on TISE,” they remark.
Besides highlighting that the REIT’s portfolio occupancy remains at 100% supported by strong government tenants, the analysts note that management expects the elevated unemployment rate to continue supporting demand for job centres.
As at 11am, units in Elite Commercial are trading flat at 67.5 pence.
