Elite Commercial Reit sees rising demand for UK properties on tenant's hiring plans

THE manager of Elite Commercial Reit - a UK-focused real estate investment trust (Reit) - on Wednesday said its portfolio of properties is facing an increase in demand for office space in a counter-cyclical fashion to the rest of the market.

This comes as its primary tenant, the UK government's Department Of Work And Pensions (DWP), is actively hiring more staff as part of its drive to double the number of work coaches in the country to 27,000 and amid increased services being provided by the government to support the economy in times of need, the manager said.

The update on Wednesday was provided in response to news reports citing a decrease in demand for central business district office space as employees are required or wish to work from home due to the Covid-19 pandemic, the manager noted.

It added that it does not expect a significant business disruption at the Reit's properties, even as the UK government this week imposed new restrictions to curb the spread of Covid-19. The latest measures include keeping social groups to a maximum of six, and the closure of pubs, restaurants and hospitality venues at 10pm, Prime Minister Boris Johnson had announced. In addition, there must be distanced table service only.

The DWP is the primary occupier of the Reit's portfolio and the UK government's largest public service department. It is responsible for the UK's welfare, employment, pensions and child maintenance policy, and serves over 20 million claimants.

According to the manager, 82 per cent of Elite Commercial Reit's assets are the social infrastructure facilities used to provide the DWP's key front-of-house services, primarily through Jobcentre Plus locations.

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During the previous lockdown in the UK, the Reit's Jobcentre Plus locations had remained open to process and disburse benefits to claimants, even as medical assessments, interviews or other face-to-face appointments were discouraged, the manager said.

The UK government employs 13,000 work coaches at Jobcentre Plus, which offer retraining to people looking for opportunities to start a new career. The DWP plans to have 4,500 more work coaches by October this year and a further 9,000 by March 2021.

As the DWP hires more work coaches, there is also a greater need for floor space for the work to be carried out, the manager noted. This increased utilisation has been demonstrated through the waivers or extension of break options for two properties within the Reit's portfolio, namely Lodge House in Bristol, and John Street in Sunderland, the manager said.

For the most recent reporting period from Feb 6 to June 30, the Reit had received in advance 99.8 per cent of the three months' rent within seven days of the due date in June 2020. This represents a stable cash flow which is closely related to the Reit's strategy of having assets which are primarily occupied by a counter-cyclical tenant, the manager added.

Said Shaldine Wang, chief executive officer of the manager: "The Reit's primary tenant DWP plays a crucial role in the social infrastructure serving the UK's local communities. The utilisation of the Reit's assets, Jobcentre Plus' footfall and DWP benefit spending are all inversely correlated to the UK economy and employment rates."

As such, despite the macroeconomic uncertainty resulting from Covid-19, the manager remains positive about its current focus on commercial assets with the ability to generate cash flow backed by UK sovereign credit.

"We are confident of the continued demand for the Reit's assets and its ability to provide attractive and recession-proof cash flows and ultimately continue to deliver stable and growing returns to our unitholders," added Ms Wang.

Units of Elite Commercial Reit were trading at 62 pence as at 10.53am on Wednesday, up one pence or 1.6 per cent.