Release Date: September 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Elanor Commercial Property Fund (ASX:ECF, Financial) achieved its distribution guidance of $0.085 per security, reflecting an 81% payout ratio.
- The fund maintained a high occupancy rate of 98.4% at the end of the period.
- Like-for-like income growth was a strong 4.7% over the year.
- The portfolio's weighted average lease expiry increased to 4 years from 3.1 years.
- The fund's debt facility is well-hedged at 76%, resulting in a stable weighted average cost of debt of 4.5% per annum.
Negative Points
- Valuations decreased by 7.8% over the year due to rising cap rates.
- Gearing is at the upper end of the target range at 39.9%, with a look-through gearing of 45%.
- Net tangible asset value per security fell to $0.84.
- The fund's investment in the Harrison Street Fund has been negatively impacted by rising cap rates, resulting in elevated gearing.
- The forecast distribution for FY25 is lower at $0.075 per unit, reflecting an 11.6% yield on the current security price.
Q & A Highlights
Elanor Commercial Property Fund (ASX:ECF) Earnings Call Highlights
Q: Can you provide an overview of the fund's performance for the year ending June 2024?
A: Paul Siviour, COO: The fund achieved its distribution guidance of $0.085 per security, reflecting an 81% payout ratio. We saw strong occupancy and rental growth across the portfolio. Despite a challenging year for commercial property in Australia, ECF performed well operationally, although valuations were negatively impacted.
Q: What were the key financial metrics for the year?
A: David Burgess, Co-Head of Real Estate, Fund Manager: FFO per security was $0.1047, and distributions were $0.085 per unit. Occupancy was 98.4%, and the portfolio's weighted average lease expiry (WALE) increased to 4 years. Valuations decreased by 7.8%, resulting in gearing at the upper end of our target range and NTA falling to $0.84 per unit.
Q: How did the fund perform in terms of leasing?
A: David Burgess: We completed significant leasing activities with 85% of transactions at positive leasing spreads. Key assets like Cavill Avenue saw strong leasing spreads of 10%. Overall, we reduced FY26 expiries by 43%.
Q: What is the outlook for asset valuations and rental growth?
A: David Burgess: Valuations have been impacted by rising return hurdles, but we believe we are nearing the market trough. Our portfolio's weighted average cap rate is 7.6%, and we expect continued rental growth, with market rental growth over 5% for the year.
Q: Can you elaborate on the fund's gearing and capital management strategy?
A: Paul Siviour: Gearing is at 39.9%, within our target range of 30-40%. We plan to reduce gearing through asset sales. The fund's debt is well-hedged at 76%, with a weighted average cost of debt at 4.5% per annum. We have significant headroom in our LVR and interest cover covenants.
Q: What are the key focus areas for FY25?
A: David Burgess: Our focus is on maintaining income stability, FFO growth, and NTA stabilization. We will continue strong asset management and leasing efforts and execute asset sales to reduce gearing. FFO guidance is $0.093 to $0.098 per security, with a forecast distribution of $0.075 per unit.
Q: How does the fund plan to handle the elevated gearing in the Harrison Street investment?
A: David Burgess: We aim to reduce gearing in the Harrison Street fund through recapitalization, supported by the senior lender. This will extend the senior loan facility to June 2027. The elevated gearing does not impact ECF's covenant headroom.
Q: What are the prospects for leasing and tenant demand in the coming year?
A: David Burgess: We expect continued positive leasing activity and strong tenant demand. We are in active negotiations for many of the upcoming lease expiries, which should support ongoing income stability and growth.
Q: What is the expected impact of potential asset sales on FFO guidance?
A: David Burgess: The lower end of our FFO guidance range assumes several asset sales, while the upper end assumes no asset sales. This approach provides flexibility in managing our portfolio and financial metrics.
Q: Can you summarize the key achievements and outlook for the fund?
A: Paul Siviour: The fund achieved strong occupancy and income growth in FY24. We are guiding to a distribution of at least $0.075 per security for FY25, with strong prospects for continued positive leasing activity and financial performance.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
