UOB Kay Hian Private Limited
Date of Report: 6 May 2025

Elite UK REIT Delivers Robust 1Q25 Results: Counter-Cyclical Strength, Strategic Redevelopments, and Attractive Yield

Overview: Elite UK REIT’s Strong Performance and Strategic Vision

Elite UK REIT (ELITE SP), the first UK-focused S-REIT listed on SGX, has reported resilient 1Q25 results, confirming its position as a leading player in UK social infrastructure and living assets. The trust posted notable growth in distributable income, supported by effective capital management, cost savings, and a strategic expansion into high-demand segments such as purpose-built student accommodation (PBSA) and data centres.

• Recommendation: BUY (Maintained)
• Share Price: £0.29
• Target Price: £0.35 (Upside 20.7%)
• Market Cap: £170.9m (US\$128.6m)
• Major Shareholders: PartnerRe Ltd (22.6%), Sunway RE Capital (11.2%), Ho Lee Group (7.6%)
• FY25 NAV/Share: £0.41
• FY25 Net Debt/Share: £0.29

1Q25 Financial Highlights: Growth and Stability

Elite UK REIT delivered solid growth in the first quarter of 2025, demonstrating its resilience in a challenging macroeconomic environment.

• 1Q25 DPU: 0.76 pence (+9.6% YoY), driven by non-recurring income and lower tax expense
• Bearing Cost: Improved 0.1ppt QoQ and 0.4ppt YoY to 4.8%
• Occupancy Rate: 93.5% (up 120bp QoQ), poised to rise further post-divestments
• Portfolio WALE: 3.1 years

Operational Excellence: Occupancy, Rent, and Portfolio Dynamics

Elite UK REIT’s operational strategies continue to bear fruit:

• Portfolio Optimization: Divestment of vacant Crown Buildings, Caerphilly for £710,000 (18% above valuation), boosting occupancy.
• Expected Occupancy Increase: Set to reach 95.2% following further divestments (Hilden House, St Paul’s House).
• Rental Reversions: Positive reversionary rent from Dallas Court, Salford (+30%) and 24% uplift for Ladywell House, Edinburgh’s medical centre tenant.

Key Financials Snapshot (2023-2027F)

Capital Management and Leverage: Conservative and Prudent

• Aggregate Leverage: Improved to 42.2% as of Mar 2025, trending toward management’s long-term target of below 40%.
• Refinancing Profile: No debt maturing until 2027; embedded options allow for a two-year extension.
• Interest Coverage: 2.6x, reflecting ample buffer.
• All Debt Sustainability-Linked: Lower rates as energy performance improves.

Strategic Expansion: Social Infrastructure, PBSA, and Data Centres

Elite UK REIT has broadened its mandate to include a wider spectrum of UK asset classes, focusing on both social infrastructure and the high-demand living sector.

• Social Infrastructure Focus: Ongoing investment in jobcentres, government offices, and workspaces.
• Living Sector Diversification: Expansion into PBSA and build-to-rent residential housing.
• Renaming: Rebranded as Elite UK REIT in April 2024 to reflect the expanded UK-focused mandate.

PBSA Redevelopment Pipeline

• Lindsay House (Dundee, Scotland): Proposed redevelopment into a 168-bed PBSA near Dundee University, targeting a strong student-to-bed ratio (>2.5x).
• Newport Road (Cardiff, Wales): Proposed 298-bed PBSA near Cardiff University.
• Sponsor Pipeline: Sunway RE Capital owns five PBSA assets in four cities (Bristol, Manchester, Sheffield, Southampton), offering future acquisition opportunities.

Data Centre Initiatives

• Peel Park, Blackpool: Plans for a state-of-the-art, hyperscale, AI-enabled data centre campus on a 15.7ha site, with 120MVA secured power supply and proximity to a transatlantic cable landing station.
• Monetisation Plan: Site valued at £32.8m (Dec 2024); management aims to monetise after planning approval in 2H25, potentially funding further asset enhancement initiatives (AEIs) and considering a special dividend for unitholders.

Pipeline and Planning Approvals

• Planning Applications: Submitted for Dundee PBSA and Blackpool data centre; expected approvals in 2H25.
• Potential Special Dividend: Peel Park divestment proceeds may facilitate further unitholder rewards.

Tenant and Portfolio Breakdown

• Geographic Diversification: Major exposure in North West (23.8%), Scotland (16.7%), London (14.9%), and other UK regions.
• Tenant Mix: Department for Work and Pensions (DWP) dominates (94.4% of gross rental income), followed by Ministry of Defence (2.4%), HM Courts & Tribunals Service (1.4%), and others.

Key Operating Metrics (Recent Quarters)

Debt Maturity and Financial Resilience

• Debt Maturity Profile: Bulk of term loans due in 2027-2028, with a two-year extension option available.
• Interest Rate Management: 88% of borrowings are on fixed rates, limiting exposure to rate volatility.

Strategic Lease Management

• Early Lease Renewal: Ongoing discussions with the DWP to renew leases expiring in 2028, aiming to extend, diversify, and stagger expiries. Management is optimistic about renewing one-quarter of leases in 2025.

Valuation and Outlook

• Target Price: £0.35, derived using DDM (COE: 9.25%, terminal growth: 1.0%).
• Investment Case: Elite UK REIT stands out as a recession-resistant, counter-cyclical yield play, well-positioned to weather geopolitical and economic uncertainties.
• Share Price Catalysts: Accretive acquisitions in government offices and PBSA, successful planning approvals, and potential special dividends from strategic asset monetisation.

Conclusion: A Compelling, Defensive UK REIT Opportunity

Elite UK REIT’s impressive 1Q25 performance, prudent financial management, and forward-thinking expansion strategy underscore its position as a premier counter-cyclical yield play in the UK real estate space. With a robust pipeline in PBSA and data centres, conservative leverage, and an attractive distribution yield, Elite UK REIT offers significant value and stability for yield-focused investors seeking exposure to the resilient UK social infrastructure and living sectors.