Elanor Retail Property Fund announced its annual financial results for FY20 with Core Earnings for the period of $11.1 million, down -8.7% on FY19, valuations down 5% and gearing near 44%. The fund has suspended its June 2020 distribution.
The high gearing places the fund at risk of requiring additional capital or selling assets at a time when larger Centres are unwanted. Elanor has flagged the need to sell its non core assets for over 12 months, but has not been able to conclude any arrangements. The Fund has $100m of debt maturing in 2022 and unless valuations drop in the meantime, the fund has just 12 months to resolve its funding arrangements. Its LVR covenant would be at risk if the valuations fell a further -11%.
The portfolio comprises 7 retail shopping centres of which 2 are being re-positioned and 5 held as income assets. Approx 63% of rental income is from non-discretionary retailers and, like most retail property, its tenants have been impacted by COVID19. The Fund collected 82% of its June quarter income as a result of the COVID-19 pandemic and has made a provision for rental relief requests of $1.3 million, or 4.8% of NOI for the financial year ended 30 June 2020.
The Fund is currently trading at 0.87c per security against an NTA per security of $1.34 as at 30 June 2020, reflecting a -35% discount.
Commenting on the result, Elanor CEO, Glenn Willis, said: “We remain confident that the Fund is well positioned to continue to grow value for security holders. We are pleased with the performance of the Fund’s Income Assets and the progress of the repositioning strategies at the Fund’s Value-Add assets. The defensive nature of our non-discretionary focused portfolio is highlighted by its strong rental collections – having collected in excess of 78% of gross rent for the June quarter – and the strength of the Fund’s property valuations in these challenging times.”
Fund Manager, Michael Baliva, said “We remain focused on unlocking the significant value upside in the Fund’s Value-Add assets, Auburn Central and Tweed Mall. Both assets will continue to benefit from the introduction of new ALDI supermarkets, and the repositioning of the centres’ retail mix to non-discretionary focused offerings. We look forward completing the highly accretive Auburn Central repositioning project in November this year, and continuing to unlock Tweed Mall’s significant mixed use development potential.”
As at 30 June 2020, ERF had a total investment portfolio value of $321.2 million, down -4.8% from 31 December 2019. The portfolio’s overall value remained largely unchanged, with the exception of Tweed Mall, which reduced by $18.1 million as a result of the ongoing repositioning of the centre to a triple supermarket anchored, non-discretionary focused retail asset. The balance of the portfolio increased 0.8% from the December 2019 valuations.
The repositioning of Auburn Central from a sub-regional retail asset into a Sydney metropolitan, triple supermarket anchored, neighbourhood shopping centre, is well progressed. The repositioning project commenced in March 2020, following the BIG W lease surrender, and is expected to open with the majority of retailers trading in November 2020. The project will deliver strong earnings accretion for the Fund, generating incremental annual Net Operating Income of more than 10% on the $20.7 million development cost. This is consistent with the forecast NOI growth for the project.
The Fund completed the first stage of its retail repositioning strategy for Tweed Mall in August 2019, introducing a new ALDI to the centre as its third major supermarket, and completing the tenancy remix at the northern mall. The strategic value-add objective to reposition the property into a significant mixed-use asset is progressing well.
Divestment of the Auburn Ambulance Station for $4.0 million was completed on 7 August 2020, realising a 60% gain on purchase price.
Gearing of the Fund at 30 June 2020 was 43.7%. This is temporarily above the Fund’s target gearing range of between 30% and 40% due to repositioning projects at the Fund’s Value-Add assets and will be reduced upon divestment of the Fund’s Income Assets.
Elanor said that the core strategy will remain focused on actively managing and growing earnings from its investment portfolio and acquiring additional high investment quality, value-add, retail properties.
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