Elite Commercial REIT MXNU has reported a distribution per unit (DPU) of 0.94 British pence (15.6 cents) for the 1QFY2023 ended March 31, 26.6% lower than the DPU of 1.28 pence in the same period the year before.
The lower DPU was due to higher borrowing costs, lower revenue from vacancies and an enlarged equity base compared to the same quarter the year before.
Revenue for the quarter fell by 0.4% y-o-y to GBP9.2 million.
Distributable income fell by 26.1% y-o-y to GBP4.5 million.
During the quarter, 136 out of the REIT’s 155 assets were up for rent escalation review on April 1. Of the 136, 134 assets have their rent escalation pegged to the consumer price index (CPI) while the remaining two have their rents pegged on open market rates. Out of the 134 assets, 11 of them have agreed rent reductions ranging between 25% and 50% in exchange for the removal of their break options.
Based on the respective lease agreements, the rent escalations are 15.28% for 127 of the assets and 21.07% for the rest of the seven assets. All of the 136 assets are occupied by the Department for Work and Pensions, except for one which is occupied by the Ministry of Defence.
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Effective April 1, the revised rent per annum for all 136 assets is at GBP36.0 million, representing a net annualised rent escalation of 13.1% compared to the rent per annum of GBP31.9 million as at March 31.
As at March 31, the portfolio’s occupancy rate stood at 97.9%. Its weighted average lease to expiry (WALE) stood at 4.5 years.
Aggregate leverage stood at 46.6% as at March 31 while its interest coverage ratio stood at 3.8x.
“We are pleased with the outcome of the rent escalation review, where the rent uplift will help to mitigate the increased borrowing costs amidst the recent interest rate hikes and effectively offsetting the impact of the reduction in rent contribution from vacant and vacating assets. We have also managed to secure lease extensions by another six months for two of the vacating assets, hence providing us with more time to execute our asset management strategies for these assets," says Shaldine Wang, CEO of the manager.
“The REIT’s assets remain stable in terms of its income profile despite volatile macroeconomic conditions globally. Our unique portfolio of commercial assets majority leased to the UK Government as crucial public infrastructure supporting the UK social fabric continue to be resilient. We have consistently collected our rents a quarter in advance, in full and on time since listing, hence securing our distributions ahead of time. With majority of the leases secured all the way till 2028, our portfolio continues to provide income certainty and visibility to our unitholders," she adds.
"We continue to be focused on maximising value and delivering sustainable value for our unitholders, through execution of asset management strategies and in realising sustainability enhancement works on various properties. Prudent capital and balance sheet management will go hand-in-hand with our overall business strategy in bringing our gearing to a more comfortable level, even as we continue to have our sights on potential opportunities for growth," she continues.
In its outlook statement, the REIT says it expects to continue providing a stable income to its unitholders as it continues to collect almost 100% of its rent a quarter in advance.
Units in Elite Commercial REIT closed at 38.5 pence on April 26.
