Elite Commercial REIT reports higher revenue for 3QFY22, but cuts DPU

By Lim Hui Jie

/ The Edge Singapore |

November 4, 2022 4:22 PM SGT

The drop in DPU is due to the manager choosing to take fees in cash, increased borrowings and interest costs, as well as an enlarged equity base. (Picture: Elite Commercial REIT)

SINGAPORE (EDGEPROP) - Elite Commercial REIT has reported a 9MFY2022 ended September revenue of GBP27.9 million ($44.63 million), a 10.3% increase compared to the same period the year before.

But despite this rise, distributable income for the REIT also came 0.3% lower at GBP18.2 million, and 9MFY2022 distribution per unit (DPU) stood at 3.79 pence, 7.8% lower y-o-y.

Elite Commercial REIT explained that the lower DPU was due to the election of its manager’s fees in cash, increased borrowings and interest costs, as well as an enlarged equity base compared to last year.

This was partially offset by the full period of rental contribution from the REIT’s maiden acquisition and tax savings from a lower headline tax rate.

As for its portfolio, Elite Commercial REIT reported a 97.9% occupancy rate as of Sept 30, with 99.9% of rent for the three-month period from October to December collected in advance and within seven days of the due date.

The portfolio’s weighted average lease expiry (WALE) stood at 5 years as of Sept 30.

In the business update, Elite Commercial REIT also announced an extension of GBP 94 million in borrowings from January 2023 to January 2025, with a built-in extension option of one year from the new loan maturity date, subject to certain financial covenants

As such, Elite Commercial REIT’s aggregate borrowing cost post-extension is approximately 4.2%, with an improved weighted average debt maturity of 2.2 years and 68% of interest rate exposure fixed.

This also means that it no longer has any material loans due in FY2023. With 68% of the REIT’s interest rate exposure fixed, the impact of rising rates is expected to be largely mitigated, it says.

Furthermore Elite Commercial REIT says its assets, liabilities and distributions are all denominated in British pounds, providing a natural hedge which limits foreign currency exchange impact.

The foreign exchange impact will only affect unitholder investments made in other currencies, and unitholders who have opted to receive distributions in Singapore dollars.

It highlights that its fundamentals remain stable, with all leases on triple net leases, where operational expenses of the properties are borne by the tenant.

“Despite rising inflation and interest rates in the UK, a majority of our properties have inflation-linked rental escalation clauses built into the leases, presenting potential upside from April 2023.”

Moving forward, the REIT notes that there will be a “very challenging outlook” for the UK economy.

The UK’s gross domestic product (GDP) is estimated to have fallen by 0.3% in August after a rise of 0.1% in July 2022 . It is now estimated to be at the same level as its pre-Covid-19 levels (referring to February 2020).

GDP is expected to decline by around 0.75% during the second half of 2022, in part reflecting the squeeze on real incomes from higher global energy and tradable goods prices.

The consumer price inflation (CPI) inflation was 10.1% in the 12 months ending September, and is projected to pick up to around 11% in the fourth quarter of 2022.

In response to high inflation, the Bank of England has raised interest rates by 0.75 percentage points to 3% as at 3 November 2022.

Despite this, Elite Commercial REIT says it is “well-positioned to continue providing stable and visible income”, with over 99% of its portfolio leased to the UK Government.

Its main occupier is the UK’s Department for Work and Pension (DWP), the largest public service department responsible for administering the country’s state pension, welfare and child maintenance policy.

Nonetheless, Elite Commercial REIT’s manager says it remains on the lookout for growth opportunities and these may be available to the REIT through its right of first refusal pipeline or from the open market.

The REIT adds it is expected to continue providing a stable income to its unitholders as it continues to collect almost 100% of its rent in advance or on time.

At 2 pm, shares of Elite Commercial REIT were trading flat at 49 pence.

This article first appeared on The Edge Singapore.

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