Elanor Investor Grow Underlying Earnings

23 February 2021

Elanor Investors group released their 6 monthly results this week with solid progress on core operating earnings from a growing funds management business.

Commenting on the result, Elanor CEO, Glenn Willis, said: “We are pleased with the continued growth in our funds under management to $1.9 billion and particularly pleased with the 79% growth in our fund management income over the comparative period.”

With a pipeline of Funds Management opportunities, a good track record and solid investor support, Elanor Investors is well positioned to continue its growth. Earnings in the group have however been impacted by minimal distributions from its co-investments due to COVID, which remains a key risk for the group, and far lower transactional income.

Highlights

  • Core Earnings for the period of $5.5 million, 4.59 cents per security
  • Distributions for the period of 4.13 cents per security, reflecting a payout ratio of 90% of Core Earnings
  • 11% net growth in Funds Under Management since 30 June 2020 to $1.87 billion
  • Funds management income of $14.9 million for the period, an increase of 79% on 1HFY20 with annualised recurring funds management income increased 12% to $15.5 million as at 31 December 2020
  • Key Funds Management initiatives completed during the period:
    • Launch of Riverside Plaza Syndicate in September 2020 for acquisition of Riverside Plaza for $60.0 million
    • Two further acquisitions by the Elanor Healthcare Real Estate Fund, growing the Fund to approximately $188.0 million
    • Launch of the Burke Street Fund in November 2020 which acquired the commercial office and healthcare properties in 2 Burke Street and 163 Ipswich Road, Woolloongabba QLD for $80.2 million
    • The sale of Auburn Central from the Elanor Retail Property Fund (ASX: ERF) for $129.5 million, a 4.0% premium to book value.
  • The valuations of the Group’s Managed Funds asset portfolio at 31 December 2020 reflected an increase of 3% from 30 June 2020
  • Net Tangible Assets per security increased 13% to $1.47
  • Gearing for the Group decreased to 25.0% (29.7% as at 30 June 2020)

Glenn Willis said, “We have a strong pipeline of funds management opportunities across our sectors of focus and are actively pursuing opportunities in new real estate sectors. Furthermore, we continue to pursue strategic growth initiatives. We are positive about the prospects to grow our funds management business and deliver strong growth in security holder value.”

Elanor’s Core Earnings are down -55% on the previous corresponding period due to a drop in distributions from co-investments (held back to mitigate against COVID) and due significant transactional income in the prior year from the sale of Featherdale Wildlife Park into the Elanor Wildlife Park Fund and the sale of Cradle Mountain Lodge into the Elanor Luxury Hotel Fund.

Recurring Funds Management Income is continuing to grow in line with the growth in Funds Under Management.

The Group’s co-investments are currently a drag on performance, 50% of which are exposed to the Hotels, Tourism and Leisure markets which have been hit hard by COVID. Gearing in some of these sub-funds is high (ie Luxury Hotel Fund at 60%) and may create headaches for the Group down the track.

Outlook

The Group’s key strategic objective is to grow funds management earnings and delivering superior investment returns for its capital partners. Elanor is committed to growing its funds management business by acquiring high investment quality real estate assets.

Furthermore, the Group is actively progressing initiatives in new real estate sectors and continues to explore strategic opportunities to deliver its growth objectives.

Our Views

The REIT is trading at a premium to NTA as a Funds Management income accounts for the vast majority of its earnings. The annualised distribution yield of 5.4% is about right, however there is an expectation of good growth in income in the year ahead.

The Group has significant Co-investments in the Hotel Tourism and Leisure sectors which I would prefer to see sold down to 25%, however those funds have been hit hard by COVID and have not made distributions in hY21, suggesting a sell down may also be difficult. Gearing across those funds are high and may be at risk of default if values fall.

Elanor Investors Group are not on our recommend list due to the high exposure to Hotel & Leisure market and the potential risks to value that reside in those funds.