ELITE Commercial Real Estate Investment Trust : MXNU 0% (Reit) has reported a distribution per unit (DPU) of 1.74 pence for the first half ended Jun 30, after retaining 10 per cent of distributable income. 

The latest DPU figure represents a 32 per cent decline from 2.56 pence in the same period a year ago. Before retention, the DPU stood at 1.94 pence, down 24.2 per cent from the previous corresponding period, based on financial results released on Monday (Aug 7). 

The retention “will help to strengthen Elite Reit’s financial position and help de-risk the Reit,” said its manager. 

The drop in distribution came as the Reit experienced higher finance costs and property operating expenses.

Gross revenue rose 3.4 per cent for the half-year period to £19.1 million (S$32.6 million) from £18.5 million. The increase was mainly due to an inflation-link rent escalation of 13.1 per cent, calculated on a net annualised basis, partly offset by vacancies in eight assets, effective Apr 1. 

Net property income, meanwhile, rose 10.5 per cent, to £20.0 million from the £18.1 million in H1 2022. 

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

Finance costs rose 103.9 per cent to £5.9 million from £2.9 million in the same period last year. Borrowing costs rose due to higher interest rates, the manager said. 

This brought the amount available for distribution after retention to £8.4 million from £12.3 million. Without retention, income available for distribution to unitholders fell 23.7 per cent to £9.3 million from £12.2 million. 

Joshua Liaw, chief executive of the manager, said: “The recent rent escalation review contributed positively to the overall financial performance of the Reit.”

Property operating expenses rose 125 per cent to £1.3 million from £0.6 million. Previously, property expenses were borne by the tenants when the properties were leased out. 

The distribution is expected to be paid out on Sep 21, after the record date on Aug 16.

As at Jun 30 2023, the Reit’s portfolio comprised a total of 155 commercial buildings located across the UK, of which 145 are currently occupied. Its occupancy rate stood at 92.1 per cent. 

The manager also announced that it has entered into a sale and purchase agreement to dispose of two of its properties – Openshaw Jobcentre, Manchester and John Street, Sunderland – for an aggregate sale consideration of £1.1 million. 

The total consideration is 14.4 per cent, or £140,000, above the aggregate book value of the two properties as of Jul 31, 2023. 

“The realisation of divestment proceeds at a premium to valuations clearly reflects the intrinsic value of the underlying portfolio of assets that we manage,” said Liaw. 

Proceeds from disposal will be used in the repayment of loans, which will lead to savings in borrowing costs, as well as the lowering of holding costs of the vacant properties.  

Its manager is also planning to divest three other vacant properties to further reduce holding costs. The sale of these three properties is expected to be at a premium to valuations. 

The Reit’s gearing improved to 46 per cent, lower by approximately 60 basis points compared to Mar 31, 2023. However, it remained higher than the 41.9 per cent gearing ratio in H1 2022. 

The manager aims to reduce gearing through strategic capital recycling in divesting as well as asset management strategies. 

As at 10.12am on Monday, units of Elite Commercial Reit were trading 5.3 per cent or £0.015 higher at £0.3.