Elite Commercial REIT’s distribution per unit (DPU) and revenue for the 1QFY2021 ended March is in line with CGS-CIMB Research’s estimates, prompting analyst Lock Mun Yee to retain her rating for the counter.
Elite Commercial REIT’s 1QFY2021 DPU of 1.22 pence represented a 64.9% jump y-o-y and 25% of Lock’s full-year estimate. It was also 1.8% higher than the REIT’s IPO forecast.
She also notes that the REIT’s 1QFY20201 revenue of GBP6.6 million represented 17% of Lock’s full-year estimate and was 15.1% higher than its Initial Public Offering (IPO) forecast, helped by initial contributions of some GBP0.9 million from its maiden acquisition portfolio.
“Stripping out the acquisition portfolio, revenue would be GBP5.7 million in 1QFY2021, in line with our expectations, forming 25% of full-year estimates,” she adds in her April 23 research note.
Pursuant to the GBP212.5 million maiden acquisition of 58 commercial properties which was completed in March, Lock notes that the REIT’s portfolio has now grown to 155 UK assets valued at GBP515.3 million.
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Occupancy stands at 100%, with a long weighted average lease expiry of 7.2 years as at end-1QFY2021.
“We expect the 58 new properties to generate [an] additional source of recurring cash flows to the portfolio from FY2021, boosting Elite Commercial REIT’s stable income profile,” she says.
Lock believes the acquisition has helped diversify the REIT's tenant mix to include other ‘high quality government tenants’. She notes that its London exposure has increased to14% of total portfolio valuation.
Lock also remains positive on the REIT’s balance sheet. “ECR continues to maintain a healthy debt maturing profile with a bridge loan of GBP9 million due in FY2022 and will not face major refinancing risks until FY2023, in our view,” she says.
She also points out that the REIT has the flexibility to tap on sources of funding to lower its gearing ratio to below 40% from its 42.1% as of end-1QFY2021.
The analyst reiterates her ‘add’ call and target price of 79 pence.
SEE:New UK properties boost Elite Commercial REIT's 1Q21 DPU by 65% to 1.22 pence
“We like Elite Commercial REIT for its stable income profile, with built-in-growth through its inflation-linked rental structure and inorganic growth potential,” she says.
She notes that re-rating catalysts could come from rental uplifts for the majority of its portfolio in FY2023, while downside risks include tenant exposure to the Department for Work and Pensions.
As at 2.38pm, units in Elite Commercial REIT are trading flat at 66.5 British pence.
