Elite Commercial REIT - CGS-CIMB Research 2023-08-07: Improving Portfolio Resiliency

• Elite Commercial REIT (SGX:MXNU) posted a 3.4% y-o-y increase in 1H23 revenue to £19.1m, thanks to rental escalation of about 13.1% for 136 of its 155 assets, following an inflation-linked rental uplift effective Apr 2023, partly offset by income vacuum from 8 vacant assets.
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• Income available for distribution fell 23.7% y-o-y to £9.3m as earnings were eroded by higher interest expense. Elite Commercial REIT's 1H23 DPU of 1.74 pence is 32% lower y-o-y, due to a lower payout ratio of 90%.

High occupancy; adopting portfolio value maximising strategy

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• With the dilapidation settlement completed for 4 of its properties, Elite Commercial REIT has proposed to divest John St, Sunderland, and Openshaw Jobcentre, Manchester, for £1.1m, or at a 14.4% premium to its last valuation. Elite Commercial REIT indicated that another 3 vacant properties are in advanced divestment negotiation stages, and the aggregate value is expected to be above its book value.
• In terms of dilapidation settlements, it has agreed on settlements for another 4 properties and has a further 4 assets under negotiation. Elite Commercial REIT indicated that these properties will undergo various asset enhancement initiatives, including being evaluated for potential divestments or redevelopments.
• We believe these initiatives would enable Elite Commercial REIT to reduce holding costs of the vacated properties or pare down debt to lower its gearing and strengthen balance sheet in the near term.

Managing gearing through strategic capital recycling

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LOCK Mun Yee CGS-CIMB Research | Natalie ONG CGS-CIMB Research | https://www.cgs-cimb.com 2023-08-07 SGinvestors.io

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