ELITE Commercial Reit’s (real estate investment trust) : MXNU 0% distribution per unit (DPU) for the nine months ended Sep 30 fell 25.6 per cent to 2.82 pence, compared to 3.79 pence during the same period last year.

Despite a 20.4 per cent rise in net property income for the three quarters to £32.5 million (S$54.2 million), distributable income dropped 25.1 per cent to £13.6 million on the year due to higher financing costs, said the manager on Tuesday (Nov 7).

Revenue for the period rose 2 per cent to £28.5 million.

The manager attributed the Reit’s “resilient performance” to the 13.1 per cent inflation-linked rent escalation since the start of April this year, the completion of dilapidation settlements for nine assets, as well as reduced debt after the repayment of its existing loans.

“This is partially offset by the absence of rental income from vacated assets and increased borrowing costs from the rise in Sterling Overnight Index Average rates.”

The manager also said a significant portion of the recycled gross proceeds were used to repay loans, saving borrowing costs and lowering the holding costs of the vacant properties.

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As at Sep 30, the gearing ratio stood at 45.8 per cent, a slight improvement from 46 per cent a quarter ago.

The manager said it aims to further reduce gearing through strategic capital recycling and asset management strategies to increase the asset value. Its net asset value per unit remains stable at £0.51 as at the end of September.

Under the 50 per cent gearing limit, it has a debt headroom of £40 million, and about 62 per cent of the interest exposure is fixed.

With an interest rate coverage ratio of 3.3 times, every interest rate increase of 100 basis points would drag down its DPU by approximately 5 per cent, said the manager.

As the Bank of England has maintained its bank rate in the most recent meeting, the manager expects borrowing costs for Elite Commercial Reit to stabilise.

The Reit’s portfolio occupancy rate stood at 92.1 per cent as at the end of September, with a weighted average lease expiry of 4.3 years.

The manager highlighted that over 99 per cent of the leases were signed directly with the UK government, which provides “credit stability and income certainty”. It added that its portfolio’s primary occupier is the UK’s largest public service department, the Department of Works and Pensions, making the Reit’s assets a critical part of the country’s public infrastructure.

Joshua Liaw, chief executive officer of Elite Commercial Reit’s manager, said: “We are especially pleased to be able to divest five of the Reit’s vacant assets at a considerable premium to valuation, and are making good headway on unlocking value for our unitholders for the remaining vacant assets through a mix of asset management strategies including re-letting, change of use and disposal.”

As at Oct 25 this year, the Reit had realised five divestments for an aggregate sale consideration of £3.4 million, which represented a premium of about 12.2 per cent to the total valuation of the five assets.

The five properties are Openshaw Jobcentre, Manchester; Cardwell Place, Blackburn; Leeds Road, Bradford; John Street, Sunderland; and Crown House, Burton on Trent.

In addition to the divestments, the dilapidation settlements for nine assets have been concluded so far this year.

“Our active capital recycling strategy and prudent capital management have also improved Elite Reit’s financial flexibility,” added Liaw, noting that the Reit will continue focusing on enhancing portfolio resiliency and strengthening its balance sheet against macro uncertainties.

The counter closed down 6.1 per cent, or £0.015, to £0.230 on Monday.