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Elite Commercial REIT expands investment strategy to include UK PBSA

Jovi Ho
·3-min read

One of the REIT’s sponsors, Sunway RE Capital, owns a portfolio of five PBSA assets in four UK cities.

The UK-focused Elite Commercial REIT has announced an expansion of its investment strategy to include purpose-built student accommodation (PBSA). One of the REIT’s sponsors, Sunway RE Capital, owns a portfolio of five PBSA assets in four UK cities. In an April 15 statement, the REIT manager says it will tap this sponsor’s expertise in the sector.

Sunway owns a portfolio of five quality PBSA assets in four UK cities: Bristol, Manchester, Sheffield and Southampton; with over 820 beds. The REIT manager says Sunway’s PBSA assets are well-located in cities where Russell Group’s reputable world-class, research-intensive universities are located.

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Russell Group’s 24 member universities include the University of Cambridge and Imperial College London. The group’s universities reportedly produce more than two-thirds of the research produced in UK universities.

That said, the manager claims there is an estimated shortfall of 580,000 beds in the UK. Citing CBRE Research, the manager says rent growth for PBSA is forecast to be more than 5% for the 2024/2025 letting cycle.

The new investment strategy positions the REIT as a Singapore REIT “established with the investment strategy of principally investing, directly or indirectly, in real estate and real estate-related assets in the UK”.

In line with the expansion of investment strategy, the name of Elite Commercial REIT will be changed to Elite UK REIT “in due course”, says the manager. “This name change will better reflect the broadened investment strategy of the REIT.”

According to the manager, the expanded investment strategy will allow Elite Commercial REIT the “flexibility and option” to tap into a larger pool of investment targets that might bring attractive yields and increased capital appreciation potential, including assets from non-discretionary sectors in the UK, such as the living sector. This includes PBSA and build-to-rent (BTR) residential assets.

According to the manager, the number of built units in BTR residential still represents only just over 2% of the UK’s total private rental stock. “Higher mortgage rates have exacerbated the imbalance in the past 12 months, as they have caused activity in the sales market to slow and pushed potential buyers to remain renters for longer.”

The REIT has three sponsors. The other two are the Singapore-headquartered Elite Partners Holdings and Ho Lee Group.

Its current portfolio of 150 “social infrastructure assets” are predominantly leased to UK government bodies. As at Dec 31, 2023, the weighted average lease expiry is 4.2 years and occupancy by net internal area stands at 92.3%.

The majority of its leases expire in 2028. The manager says it is “cognisant” of the current concentration in terms of tenant mix and lease expiry and is working to renew leases beyond 2028.

In February, the REIT reported a distribution per unit (DPU) of 3.42 British pence (5.8 cents) for the FY2023 ended Dec 31, 2023; 28.9% lower y-o-y, based on a payout ratio of 100%.

At a payout ratio of 90%, however, unitholders will receive DPUs of 3.07 pence for FY2023.

Revenue for the FY2023 increased by 1.5% y-o-y to GBP37.6 million. Net property income (NPI) rose by 15.7% y-o-y to GBP41.4 million, including GBP317,000 of straight-line rent adjustments.

In March, the REIT obtained refinancing of up to GBP135 million from a group of financial institutions. While the manager did not disclose the lenders in a March 4 bourse filing, it says the “new lending relationships” were sourced through the REIT’s sponsors.

As at Dec 31, 2023, the REIT’s gearing stands at 47.5%. Following a GBP28 million preferential offering that concluded on Jan 18, gearing fell to 40.9% with a GBP55.9 million debt headroom based on a 50% limit.

Units in Elite Commercial REIT closed flat at 24.5 pence on April 12.

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