ANALYSTS have shaved their target prices on Elite Commercial Reit after the real estate investment trust (Reit) posted a 40.9 per cent drop in distribution per unit (DPU) for the second half ended Dec 31, 2023.
The drop in DPU was mainly due to a marginally enlarged unit base and lower distribution payout ratio of 90 per cent versus 100 per cent in the same period last year amid macroeconomic uncertainty.
Following the results, CGS-CIMB reduced its DPU estimates for FY2024-25 by 22.7 to 24.2 per cent. This was to account for the expansion in unit base, higher funding costs and a lower assumed dividend payout ratio.
Its target price is now down by 22 per cent to £0.38 from £0.49, which implies a potential upside of 43.4 per cent from the counter’s last trading price of £0.265 as at 4.03 pm on Tuesday (Feb 20). Units of Elite Commercial Reit were trading flat at the time.
CGS-CIMB maintained its “add” recommendation on the counter, as it believes Elite Commercial Reit is still trading at an attractive dividend yield of 11.6 per cent.
DBS Group Research, meanwhile, has cut its target price to £0.28 from £0.33 and maintained its “hold” call on the counter.
Like CGS-CIMB, DBS’s research team cut its FY2024 DPU estimates by 15 per cent due to the Reit’s enlarged equity base, which it sees as a “small trade-off” for a strong foundation for the Reit’s growth, it said in a report on Tuesday.
Separately, Phillip Securities lowered its target to £0.34 from £0.36 and reiterated its “buy” call on the Reit. Elite Commercial Reit’s H2 DPU results were within the research team’s expectations.
With the extra proceeds from its preferential offering in December 2023, the Reit has also been largely de-risked with a healthier gearing and stable cash flow until 2028 due to the lack of a break clause, Phillip Securities analyst Liu Miaomiao said.
That being said, the Reit could face further downtime due to its vacant assets. It currently has an occupancy rate of 92.3 per cent with a weighted average lease expiry of 4.2 years.
“We expect that more time will be needed for re-letting, with four properties expected to be filled by the middle of FY2024. In the meantime, the dilapidation settlement fee will cover the revenue shortage resulting from vacancies,” Liu noted.
