KGI Research Singapore

Singapore's leading broker offering Futures, FX, Equities and Wealth Management.

Company Update: Elite UK REIT (ELITE SP/MXNU.SI)


Company Update: 18 December 2024

High yielding with government-backed cashflow.

  • Occupancy rate growth. In the face of evolving market dynamics, Elite UK REIT’s occupancy rate has risen to 93.9%, bolstered by the strategic divestment of Sidlaw House in Dundee for £1.3mn. This improvement reflects growing investor demand for well-located properties in the UK. In addition, the REIT has successfully completed a lease renewal for Theatre Buildings in Billingham, achieving a positive rent reversion of 5.3%.

Alternative revenue streams

Recognizing the potential of underutilized properties, Elite UK REIT is exploring alternative revenue streams, such as converting office spaces into student accommodations. This strategy focuses on properties near Russell Group universities, capitalizing on the demand from international and domestic students. With its proactive approach, the REIT is well-positioned to leverage rental reversions and capitalize on expiring leases to drive revenue growth in the near term.

3Q24 financial results: Navigating the interest rate cycle

Elite UK REIT demonstrated resilience in 3Q24, delivering a 2.8% increase in distributable income to £14.0mn despite a slight revenue decline to £28.0mn from £28.5mn in the prior quarter. This resulted in a rise in DPU to 2.13 pence per share, up from 2.05 pence in 9M23. Portfolio occupancy improved to 93.9% as of 7 October 2024, a 160bps increase from 1H24, driven by the divestment of Sidlaw House in Dundee. Proceeds from the divestment of £1.3mn and dilapidation settlement of £1.4mn were largely used to reduce the loan amount to £189.1mn. The portfolio maintains a weighted average lease expiry of 3.5 years.

Valuation & Action

We initiate OUTPERFORM coverage of Elite UK Reit with a £0.37 price target. Our DCF valuation uses a 2.0% terminal growth rate and a 9.0% cost of equity. Elite’s secure government-backed income and upcoming rental reversions support strong growth. Our target implies 27.6% upside.

Risks

Lease renewal uncertainty, high-interest rate environment and geopolitical risks.



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