RESEARCH houses reduced their price targets for Elite Commercial Real Estate Investment Trust : MXNU 0% (Elite Commercial Reit) following the release of the Reit’s financial results for the first half ended Jun 30.

On Monday (Aug 7), the Reit reported a distribution per unit (DPU) of 1.74 pence after retaining 10 per cent of its distributable income.

This came in below CGS-CIMB’s estimates, prompting its analysts to trim their price target on the Reit to £0.49 from £0.57. 

“We lowered our FY2023 DPU estimates by 17.4 per cent to factor in a lower 90 per cent payout ratio, updating for the vacated and divested properties,” said the analysts on Monday, who nonetheless said they expect an “attractive” dividend yield of 12.3 per cent for the full year. 

They also reduced DPU estimates by 7.5 per cent for FY2024 and by 8.3 per cent for FY2025. 

Despite the cut in price target, CGS-CIMB maintains its “add” call, highlighting the Reit’s high occupancy rate and its portfolio value maximising strategy. 

A NEWSLETTER FOR YOU

Tuesday, 12 pm

Property Insights

Get an exclusive analysis of real estate and property news in Singapore and beyond.

Sign Up

“We believe these initiatives would enable the trust to reduce holding costs of the vacated properties or pare down debt to lower its gearing and strengthen its balance sheet in the near term,” added the analysts. 

In comparison, DBS Group Research reduced its price target by a greater amount to £0.33 from £0.53 while maintaining its “hold” call. 

In their report on Friday, analysts from DBS said that the Reit’s H1 DPU was below their expectation “as a result of higher-than-expected interest expenses”. 

They hence cut their distributable income estimates by 6 per cent for FY2023 and by 1 per cent for FY2024, while lowering the payout ratio to 90 per cent to reflect the 10 per cent retention.

While CGS-CIMB said they liked the Reit for its “stable income portfolio” in view of its inflation-linked rental structure, analysts from DBS expressed reservation about the Reit’s potential for revenue growth, due to its non-renewal of leases despite recent rental escalations.  

“Although there were positive rent reversions of around 13.1 per cent for 136 assets in the Reit’s portfolio in April 2023 on the back of record-high inflation in the UK, rental income growth is expected to be modest in FY2023-FY2024 as a result of the non-renewal of leases at 12 properties,” said DBS analysts.  

On the other hand, the Reit’s weak credit metrics contributed further to DBS analysts’ decision to cut their price target, as the “higher cost of debt in a rising interest rate environment” would weigh on the Reit’s dividends.

The Reit’s high gearing ratio of 46 per cent as at Jun 30 suggests a “limited buffer in terms of regulatory limits”, noted the analysts. 

DBS expects a distribution yield of 11.1 per cent for FY2023. 

As at 2.26pm on Friday, units of the Reit were trading at £0.3, £0.005 or 1.6 per cent down from Thursday’s closing price.