Elanor’s Rejection of Takeover Offer Raises Questions on Future Growth Path

FY25 Financial Performance Amid Market Challenges

Elanor Commercial Property Fund (ECF) closed the 2025 financial year with a portfolio valued at $495.3 million, marking a modest 3.7% decrease from the previous year. This decline reflects a slowing but persistent cap rate expansion, which rose by 15 basis points compared to 74 basis points in FY24. Despite this, the fund delivered a Funds From Operations (FFO) of $35.4 million, or 9.4 cents per security, slightly surpassing its guidance of 9.3 cents.

Distributions were maintained at 7.5 cents per security, yielding an annualised 12.1%, well above peer averages. The fund’s gearing was prudently reduced to 38.1% following a $52.5 million equity raise, positioning ECF within its target leverage range of 30-40% and enhancing financial flexibility.

Active Asset Management and Leasing Momentum

ECF’s strategy of active asset management and targeted leasing has sustained a high occupancy rate of 96.3%, despite a weighted average lease expiry (WALE) shortening to 3.4 years. Key assets such as Workzone West in Perth and 50 Cavill Avenue on the Gold Coast saw strong leasing activity and rental growth, with market rents increasing by 3.5% over the year. The fund’s focus on repositioning assets and securing long-term leases with quality tenants underpins its outlook for NAV recovery and income growth.

Notably, the repositioning of Workzone West, including lobby and end-of-trip facility upgrades, has attracted strong tenant interest ahead of a major lease expiry in August 2025. Similarly, leasing momentum at Harris Street and Garema Court is expected to drive valuation upside as vacancies are filled and WALE extends.

Market Outlook and Strategic Positioning

Market indicators suggest the office property sector has bottomed, with early signs of recovery evident in rental growth and stabilising capitalisation rates. ECF’s portfolio is concentrated in outperforming metropolitan markets across Australia, including Brisbane, Sydney, Canberra, and Perth, which have seen demand exceed pre-COVID levels. This positioning supports the fund’s FY26 guidance of FFO per security between 7.5 and 8.0 cents and distributions of 6.5 cents per security, reflecting a payout ratio of 84%.

The fund plans to continue executing leasing strategies to maximise income, maintain disciplined capital management, and selectively pursue growth opportunities once the core portfolio stabilises. With debt facilities extended to November 2027 and 77% of debt hedged, ECF has secured funding certainty to support leasing incentives and asset enhancements.

Takeover Offer Rejected Amid Strategic Confidence

In a significant corporate development, the Lederer Group launched an unsolicited off-market takeover offer for ECF at $0.70 per security, representing a premium of 5.3% to the last closing price and 10.9% to the 30-day volume-weighted average price. Despite this, ECF’s Independent Board Committee has recommended that securityholders reject the offer, citing that it is not in their best interests to engage further.

Lederer Group currently holds approximately 27.5% of ECF’s securities, but the board’s stance reflects confidence in the fund’s strategic direction, asset quality, and potential for NAV and income recovery. Securityholders have been advised to take no action regarding the offer.