Elite Commercial REIT - Model Update
- We update our model to pencil in Elite Commercial REIT (SGX:MXNU)’s latest debt refinancing exercise.
- In Nov 2022, Elite Commercial REIT entered into a second supplemental agreement with Lloyds Bank Plc and CIMB Bank Bhd to extend the maturity of its existing loan facility of £94m, comprising a term loan facility of £76m and a revolving credit facility of £18m, by two years, from 25 Jan 2023 to 25 Jan 2025. There is also a further 1-year extension option from the loan maturity date, subject to certain financial covenants.
- Based on management’s indication of refinanced debt cost of 5.96%, Elite Commercial REIT’s overall cost of debt could rise from 2.6% at end-3Q22 to ~4.2% post refinancing, while its debt maturity is extended to 2.2 years. We estimate post-refinancing interest coverage ratio to decline from the present 5.6x to ~3.4x, still well above the guideline 2.5x.
- Elite Commercial REIT's gearing is unchanged at 41.9% at end-3Q22.
- See Elite Commercial REIT's announcement dated 04 Nov 2022 – In its 3Q22 business update, Elite Commercial REIT reported
- 9M22 revenue of £27.9m, +10.3% y-o-y (3Q: £8.4m) while distribution income remained relatively flat at £18.2m (3Q: £5.9m).
- However, 9M DPU of 3.79 pence is 7.8% lower y-o-y, largely due to higher interest expense, an enlarged unit base and following the Manager’s option to receive 100% of its management fees in cash instead of units, partly offset by rental income from its maiden acquisition and tax savings from a lower headline tax rate.
- Elite Commercial REIT's portfolio occupancy dipped slightly q-o-q to 97.9% as two properties were vacated in Apr and Jun 2022. It has collected 99.9% of rent for the Oct-Dec 2022 period.
- Elite Commercial REIT has received notice to exercise a lease break option for Lindsay House, Dundee and Ladywell House, Edinburgh. Lindsay House is being actively marketed to potential occupiers, with alternative uses being considered. Proactive tenant engagement at Ladywell House is ongoing to maximise space use and to derive the best outcome from active asset management of this property. We anticipate potential near-term income vacuum from these properties to be offset by an estimated rental uplift of 14-15% from the upcoming rent review in Apr 2023F.
- Elite Commercial REIT has also undertaken asset enhancement works to improve energy efficiency of its building including upgrading heating/HVAC system and installation of new LED lighting at Bradmarsh Business Park, Rotherham, that enabled the property’s EPC rating to improve from D-90 to B-49.
- We lower our FY22-24F DPU estimates for Elite Commercial REIT by 4.4-15.5% to bake in the higher funding cost. Maintain ADD rating on Elite Commercial REIT with lower target price of £0.59.
- We believe Elite Commercial REIT’s stable income portfolio, with inbuilt growth through its inflation-linked rental structure should provide resilience during this volatile interest rate period.
Above is the excerpt from research report by CGS-CIMB.
Clients of CGS-CIMB may access the full report in PDF @ https://www.itradecimb.com.sg/.
LOCK Mun Yee CGS-CIMB Research | Natalie ONG CGS-CIMB Research | https://www.cgs-cimb.com 2022-11-09 2022-11-09
Previous report by CGS-CIMB:
2022-03-01 Elite Commercial REIT - Strengthening Its Portfolio.