Elanor’s Funds from Operations Rise 6.9% Despite $5.4M Statutory Loss

Financial Performance and Operational Highlights

Elanor Commercial Property Fund (ECF) has released its preliminary final report for the year ended 30 June 2025, revealing a statutory loss of $5.4 million, a significant improvement from the $26.7 million loss recorded in the prior year. Despite this, the Fund's underlying earnings, measured by Funds from Operations (FFO), increased by 6.9% to $35.4 million, or 8.7 cents per security, reflecting resilient operational performance amid challenging market conditions.

The Fund maintained a strong occupancy rate of 96.3% across its portfolio, successfully executing new leases and renewals covering nearly 12,000 square meters. This active leasing strategy reduced the FY26 lease expiries from 28% to 25% by area, enhancing income security and tenant quality. The weighted average lease expiry (WALE) remains healthy at 3.4 years, supporting stable cash flows.

Capital Raising and Strategic Investment

During the year, ECF completed a fully underwritten 1 for 3.5 pro-rata non-renounceable entitlement offer, raising $52 million at $0.58 per security. The Lederer Group, a strategic investor, increased its holding from 14.8% to 25.8% by sub-underwriting the offer and investing $37 million. This capital injection was primarily deployed into the Harris Street Fund Capital Notes, representing a 95.8% acquisition of the issuance, with the remainder used to reduce debt and bolster working capital.

Portfolio Valuation and Market Environment

The Fund's portfolio valuation declined by 3.66% to $426.4 million, driven by rising capitalisation and discount rates amid a persistently high-interest rate environment. The equity accounted investment in the 19 Harris Street property saw a sharper valuation drop of 26.95%, reflecting broader market pressures on Sydney’s commercial office sector. Despite these headwinds, the Fund achieved 3.1% positive leasing spreads and 2.4% like-for-like income growth, underscoring the strength of its asset management approach.

Governance, Risk, and Sustainability Initiatives

ECF continues to advance its climate-related financial disclosures, aligning with Australian Sustainability Reporting Standards. Governance structures, including a Sustainability Committee and ESG Management Committee, oversee climate risk management and sustainability strategy implementation. The Fund is actively integrating climate vulnerability assessments into asset due diligence and setting energy and carbon reduction targets across its portfolio.

Takeover Offer and Market Implications

Post-reporting date, the Fund received an unsolicited off-market takeover offer from the Lederer Group, proposing 70 cents per stapled security. The Independent Board Committee, comprising independent directors, has recommended securityholders reject the offer, citing valuation concerns. The Fund’s debt facilities include covenants that could be triggered by a change in control, adding complexity to the takeover scenario. The outcome of this bid and potential refinancing arrangements remain key uncertainties for investors.