Elite Commercial REIT - Superior Income Visibility Not Priced In
- Markets mispricing positive outcome from recent lease restructuring (critical factor). Elite Commercial REIT (SGX:MXNU)’s portfolio of 155 properties boasts of full occupancy and a long WALE of 6 years, with over 99% leased to the AA-rated UK Government. As the lease break option in 2023 was removed for almost half of the portfolio, 79% of the portfolio now has straight leases through to 2028 without lease break options. The strong income visibility is a key positive for the REIT.
- We believe that Elite Commercial REIT will likely see a lift in valuations with the removal of lease break options for 100 out of 117 properties leased to DWP. The remaining 17 properties have lease break options undecided by DWP as of now, but notice will have to be served by the end of this month, otherwise the leases will continue to run till 2028, generating further upside to valuations.
- Elite Commercial REIT is committed to invest GBP12.5m in asset enhancement work over 3 years to drive ESG initiatives. With the government’s aim to achieve sustainability goals such as net zero carbon emissions by 2050, this sustainability collaboration by Elite Commercial REIT and DWP is timely. Achieving higher Energy Performance Certificate (EPC) ratings for the properties in the portfolio can provide a greater incentive for DWP to stay as a tenant beyond 2028, future-proofing the REIT.
- Maintain BUY rating on Elite Commercial REIT with target price of GBP0.80, implying a 24% potential upside, with attractive yields of 7.5%/7.8% for FY22F/FY23F.
Above is the excerpt from report by DBS Group Research.
Clients of DBS may access the full report in PDF @ https://www.dbs.com/insightsdirect/.
Singapore Research Team DBS Group Research | Dale LAI DBS Research | https://www.dbs.com/insightsdirect/ 2022-03-03 2022-03-03
Read also DBS's most recent report:
2022-11-08 Elite Commercial REIT - Higher Cost Of Debt To Weigh On DPU.
Previous report by DBS:
2022-08-15 Elite Commercial REIT - Two More Lease Breaks Exercised.