CGS-CIMB Research analysts Lock Mun Yee and Darren Ong have raised the target price accompanying their ‘add’ call for Elite Commercial REIT from 79.2 British pence ($1.48) to 82.6 British pence.
The higher target price follows the REIT’s announcement on June 4 that it is currently in the process of applying for its wholly-owned subsidiary for Elite UK Commercial Holdings (ECHL) to be listed on The International Stock Exchange (TISE).
ECHL will be listed on the TISE as a listed UK REIT and Elite Commercial REIT will continue to hold 100% of the shares in ECHL. The proposed listing is expected to be completed by 3Q2021.
Lock and Ong view the move positively as it will offer Elite Commercial REIT favourable tax treatment, including a reduction in the REIT’s principal tax rate from 19% to 15% post-listing of ECHL pursuant to the Double Taxation Treaty between UK and Singapore. In addition, any latent capital gains as well as its corresponding deferred tax liabilities arising from its properties will be eliminated.
“We expect the potential reduction of income tax by 4% points and elimination of capital gains tax from the listing of ECHL to enhance cash flows and increase ECR’s distributable income. We understand from the management that this is a technical listing and transaction costs would be minimal,” says the analysts.
To that end, Lock and Ong have raised their FY2021-FY2023 ending December distribution per unit (DPU) forecasts by 1.2%-4.5% to reflect the lower income tax rate from 4QFY2021 onwards.
Lock and Ong also highlight that the REIT's balance sheet remains healthy. "Elite Commercial REIT continues to maintain a healthy debt maturity profile with a bridge loan of GBP9 million due in FY2022 and will not face major refinancing risks until FY2023 in our view," they say.
The analysts continue to like the REIT’s stable income profile, with built-in growth through its inflation-linked rental structure and inorganic growth potential.
“Potential rerating catalysts could come from rental uplifts for the majority of its portfolio in FY2023,” the analysts add.
As at 3.30pm, units in Elite Commercial REIT are up 0.5 British pence or 0.75% higher at 67 British pence.
