Elite Commercial REIT: Elite among Singapore's Listed REIT

A UK-based office REIT, Elite has demonstrated a strong portfoilo occupancy rate so far at 97.9%. This is because a strength in its tenant mix is that it has the British Civil Service agencies as its main tenants.

Summary

• Forward Dividend Yielder of 12%
• Stable Tenant as 99% of its income comes from the UK Civil Service Agencies

Why it is Attractive

In my view, its strength lies in its tenant mix. 99% of its income is derived from UK's government bodies leasing from Elite. And even out of the 1%, a significant number comes from a non-governmental organisation that has some funding from the Welsh government.

Elite Commercial Tenent Breakdown by Income (about 99% is from the UK Civil Service)

Attractive Dividend Yield

Elite's DPU has started to fall due to a higher interest expense arising from rate hikes, as compared to the US commercial REITs, it has only 69% of its debt fixed and the rest subjected to floating rates.

Based on its latest quarterly financial results, it is expected to give about 1.9 cents per share. This translates to a forward dividend yield of 12% at current price of 29 cents. This is an attractive yield which is why I determine the REIT as an elite dividend yielder among SGX listed REITs (Singapore's REIT which has mostly non government tenants are yielding only 6-8%)

Risks

Revenue declined 0.4% year on year as there were some vacancies. However, I am not that worried, given its tenant mix.

Second Risk: Rising interest rates. Unlike USA, England's central bank does not seem that it will stop its rate hikes yet. Hence it is expected Elite's interest expense will increase, at worst I'm expecting a quarterly DPU of 0.6 cents, which is still a respectable 8% yield.

Third Risk: Elite's Leverage ratio is at 45.8%, as capitilisation rates increases due to higher interest rates, Elite will move closer to 50% which is MAS's regulatory limit. However, given that there is some distance, I feel it is not too much of an issue for now

Last Advanatage: Rental Uplift (pegged to UK CPI numbers, subject to minimum of 1%, maximum of 5%)

From 1 April 2023, Elite will be having an increase in rental inflow among its UK properties, this is a boost and I expect this to offset the interest rate hikes experienced by its loans. Elite is expecting a UK$4.2 million increase in revenue due to the rental uplift (11% increase in revenue). This means it can sustain a further 1.75% increase in borrowing cost from current rates of 4.6%.

In summary, a 12% dividend yielder for a REIT whose main tenant is the British government seems very good. I am evaluting to invest in Elite to diversify away from USA and China stocks. In addition, due to the stability of its tenant, I feel Elite might be an even better investment than buying Singapore REITs, Singapore properties for renting or owning a physical UK property for renting. 

Singapore investors could consider Elite as it gives a good divdend anda  stable tenant in the form of the British Government with a long term lease signed (average 4.8 years lease). Elite is able to raise its rentals because the UK government is fair in its dealings with Elite. As a disclaimer, I do not own any Elite Commercial REIT shares at the time of writing.