Elite Commercial REIT Review @ 6 April 2021

Basic Profile & Key Statistics

Elite Commercial REIT (Elite) is an office REIT that owns 155 properties in U.K.

Performance Review

Revenue is 5% lowered than IPO forecast but distributable income and DPU are 2.1% and 2.3% higher than IPO forecast. 

On 9 March 2021, Elite completed its maiden acquisition of 58 properties. The source of financing is from internal resources, borrowing, and issuance or consideration units. There is no equity fundraising and the DPU accretion is expected to be 8.3% as per the footnote. Below is the screenshot from 9 March Announcement.

Related Parties Shareholding

• REIT sponsor's shareholding is low at 9.01%
• REIT manager's shareholding is low at 0.57%
• Directors of REIT manager's shareholding is high at 12.17%

Lease Profile

• Occupancy is high at 100%
• WALE is long at 7.3 years
• Highest lease expiry within 5 years is low at 0%, but 100% of lease expiry falls in 2028
• Almost all properties are freehold or longer than 99 years remaining land tenure.

Debt Profile

• Gearing ratio is low at 31%
• Cost of debt is low at 1.9%
• Fixed rate debt % is low at 50%
• All debts are secured debts, but underlying properties are unencumbered
• WADM is long at 3.9 years 
• Highest debt maturity within 5 years is high at 100% which falls in 2024
• Interest coverage ratio is high at 7.7 times

Diversification Profile

• Top geographical contribution is low at 13.3%
• Top property contribution is low at 9.3%
• Top 5 properties contribution is low  at 26.2%
• Top tenant contribution is high at 99% 
• Top 10 tenants contribution is high at 100% (estimated)

Key Financial Metrics

• Property yield is high at 7.5%
• Management fees over distribution is low at 10% in which unitholders receive £10 for every pound paid 
• Distribution on capital is high at 5.4%
• Distribution margin is high at 70.8%

Trends

• Uptrend - NAV per Unit, Interest Coverage Ratio
• Flat - DPU, Distribution on Capital, Distribution Margin
• Slight Downtrend - Property Yield

The 1Q 2020 DPU of 0.74 pence (6 February 2020 to 31 March 2020) is annualized to 1.224 pence for an apple to apple comparison.

Relative Valuation

• Dividend Yield - Past 4 quarters DPU @ 4.924 pence (annuazlied) / average yield @ 7.4% = £ 0.665
• Price/NAV - NAV @ £ 0.65 x average P/NAV @ 1.08 = £ 0.70

Author's Opinion

Favorable	Less Favorable
High Directors of REIT Manager's Shareholding	Low Sponsor's Shareholding
High Occupancy	Low Manager's Shareholding
Long WALE	Low Fixed Rate Debt %
No Lease Expiry within 5 Years	Concentrated Debt Maturity
Almost 100% Freehold Properties	High Top Tenant & Top 10 Tenants Contributions
Low Gearing Ratio
Low Cost of Debt
Long WADM
High Interest Coverage Ratio
Low Top Geographical Contribution
Low Top Property & Top 5 Properties Contributions
High Property Yield
Competitive Management Fees
High Distribution on Capital
High Distribution Margin
NAV per Unit Uptrend
Interest Coverage Ratio Uptrend

Though newly listed, Elite fundamental and performance are resilient without affected by COVID-19 pandemic. Its top tenant is the Department for Work & Pensions (DWP), a British government department that contributes 99% of income. The newly acquired properties are leased to another 5 U.K. government tenants which would improve the tenant diversification.

For more information, you could refer to:

SREITs Dashboard - Detailed information on individual Singapore REIT

SREITs Data - Overview and Detail of Singapore REIT

REIT Analysis - List of previous REIT analysis posts

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*Disclaimer: Materials in this blog are based on my research and opinion which I don't guarantee accuracy, completeness, and reliability. It should not be taken as financial advice or a statement of fact. I shall not be held liable for errors, omissions as well as loss or damage as a result of the use of the material in this blog. Under no circumstances does the information presented on this blog represent a buy, sell, or hold recommendation on any security, please always do your own due diligence before any decision is made.