CGS International Securities
Date of Report: July 31, 2025

Elite UK REIT Delivers Robust 1H25: Dividend Yield Soars, Portfolio Resilience, and Strategic ESG Moves

Elite UK REIT 1H25: Solid Performance Anchored by Sovereign Tenants

Elite UK REIT (ELITE) demonstrated resilience in the first half of 2025, with results aligning with expectations and showcasing the REIT’s ability to generate steady income even amid asset repositioning.

• 1H25 Distribution Per Unit (DPU): 1.54 pence, up 10% year-on-year, representing 51.7% of the full-year forecast and benefiting from dilapidation settlements.
• Revenue: £18.0 million, a slight 0.5% decrease year-on-year, attributed to non-recurring repositioning expenses but partly offset by £1.6 million in dilapidation settlements.
• Net Property Income (NPI): £17.98 million, down 1.3% year-on-year.
• Distributable Income (pre-retention): £9.7 million, a 5.8% increase, aided by a lower effective tax rate from tax planning and sustainability capex.
• Payout Ratio: Increased to 95% (from 90% in 1H24).

Portfolio Developments: High Occupancy and Strategic Acquisitions

Occupancy: Improved to 95% as of end-1H25, following the divestment of vacant assets such as Hilden House and Crown Buildings Caerphilly.
New Acquisitions: In June 2025, ELITE acquired three assets fully occupied by the UK Home Office and DEFRA.
Lindsay House Conversion: Received approval in July 2025 for the conversion of Lindsay House, Dundee into student housing (PBSA) with the capacity for 168 beds. The project reuses existing structures, lowering costs and expediting time-to-market, targeting an opening in the 2027 academic year and >7% yield on cost.
Lease Maturity Discussions: Management has started re-gearing discussions with the Department of Work & Pensions (DWP) for 2028 lease maturities. The portfolio’s WALE (excluding new acquisitions) stands at 2.9 years.

Financial Health and Capital Management

Gearing: 41.1% at end-1H25, with a potential headroom of £76.6 million to reach 45% gearing. Management is open to joint ventures for redevelopment projects rather than fully utilising debt headroom.
Weighted Average Cost of Debt: 4.8%, with 91% of debt hedged at fixed rates.
Estimated Gross Development Value (GDV) for Lindsay House: £24 million.

Investment Thesis: Attractive Dividend Yield and Defensive Cashflow

CGS International reiterates its Add rating with a DDM-based target price of £0.38, unchanged from the previous report. Elite UK REIT stands out for its:

• Earnings Stability: Underpinned by sovereign-rated tenants, primarily the DWP (93.4% of gross rental income as of end-FY24).
• Resilient Book NAV: Supported by the peaking interest rate cycle and prospects for value uplift through property repurposing.
• Attractive Dividend Yield: FY25F yield is 8.6% at a 95% payout ratio.
• Re-rating Catalysts: Potential NAV boost from valuation uplifts and increased dividend payout ratio.
• Risks: Tenant concentration risk, primarily with DWP.

Elite UK REIT Financial Summary Table

Elite UK REIT in the SREIT Peer Universe

Elite UK REIT is benchmarked against a broad suite of Singapore-listed REITs (SREITs) across hospitality, industrial, office, retail, and overseas-centric sub-sectors. Key highlights from the SREIT comparison:

• Elite UK REIT: £0.35 price (as of July 31, 2025), £0.38 target, 41.1% leverage, 0.86 P/NAV, 8.6%–8.8% dividend yield for FY25F–FY27F.
• Manulife US REIT: 60.8% leverage, 0.29 P/NAV, dividend yield jumps dramatically to 41.8% in FY26F and 48.5% in FY27F after a 0% payout in FY25F.
• Sasseur REIT: 25.9% leverage, 0.81 P/NAV, 9.1%–9.8% yield.
• CapitaLand China Trust: 42.6% leverage, 0.70 P/NAV, 7.7%–8.0% yield.

Other SREITs in the comparison include top names such as CapitaLand Ascott Trust, CDL Hospitality Trust, Far East Hospitality Trust, Frasers Hospitality Trust in hospitality; AIMS AMP, CapitaLand Ascendas REIT, ESR-REIT, Frasers Logistics & Commercial Trust, Keppel DC REIT, Mapletree Industrial Trust, Mapletree Logistics Trust, Stoneweg Europe Stapled Trust in industrials; Keppel REIT, OUE REIT, Suntec REIT in office; CapitaLand Integrated Commercial Trust, Frasers Centrepoint Trust, Lendlease Global Commercial REIT, Mapletree Pan Asia Commercial Trust, and Starhill Global REIT in retail.
For each peer, the table presents key metrics: last stated NAV, target price, market cap, leverage, P/NAV, and dividend yield projections for FY25F–FY27F. Elite UK REIT stands out for its high yield and moderate leverage within this landscape.

ESG Commitments: Sustainable Growth and Portfolio Enhancement

Elite UK REIT is strategically aligned with the UK’s net zero carbon goals for 2050 and has made significant strides in ESG:

• Material ESG Topics: Includes climate change, energy efficiency, water management, tenant engagement, talent retention, employee development, diversity, regulatory compliance, and anti-corruption.
• EPC Targets: Aims for all properties to achieve at least a B rating by 2030. As of FY24, 3.5% of the portfolio had an EPC rating of B or higher; 23.1% at C or higher.
• Sustainability Investment: £14.7 million committed over 2022–2025 for sustainability enhancements, focusing on DWP and Ministry of Defence-occupied assets.
• Green Clauses: 98.6% of portfolio by rental income includes green clauses as of end-FY24.
• 100% of Loans: Sustainability-linked as of December 2024.
• Climate Risk: Only 9.2% (by value) and 21.3% (by floor area) of assets are in areas of extreme high baseline water stress.
• Governance: Ranked 15th in the 2024 Singapore Governance and Transparency Index (up from 40th in 2023).

Elite’s ESG activities position it for increased interest from funds prioritizing high ESG standards, even though no premium/discount for ESG is currently factored into valuations.

Portfolio Composition and Tenant Profile

Main Tenant: The Department for Work & Pensions (DWP) supplied 93.4% of gross rental income as of end-FY24.
Other Tenants: Ministry of Defence (2.4%), HM Courts & Tribunal Services (1.4%).
Geographic Spread: 23.7% (North West), 16.7% (Scotland), 14.9% (London), 11.1% (South East) of portfolio value.

Elite UK REIT: By the Numbers

Profit & Loss Highlights

• Net Property Income Margin: 94.9% in FY25F, rising to 96.0% by FY27F.
• Gross Interest Cover: 2.52x in FY25F, improving further.
• DPS Growth: 3.8% in FY25F, then 1.0% in subsequent years.
• Effective Tax Rate: 11.9% in FY25F, stabilizing at 11% thereafter.
• Net Dividend Payout Ratio: 102% in FY25F, 100% in following years.

Balance Sheet and Cash Flow

Elite UK REIT: Investment Outlook and Analyst Consensus

Rating: Add (no change).
Target Price: £0.38 (unchanged).
Current Price: £0.345 (as of July 31, 2025).
Up/downside: 10.1%.
Market Capitalization: US$276.7m (£208.0m).
Free Float: 56.2%.
Major Shareholders: Partner Reinsurance (22.3%), Ho Lee Group Trust (7.5%), Sunway Re Cap Pte Ltd (11.6%).
Consensus Ratings: Buy 6, Hold 0, Sell 0.

Conclusion: Elite UK REIT Positioned for Sustainable Income and Growth

Elite UK REIT’s performance in 1H25 highlights the strength of its sovereign-backed portfolio, robust dividend yield, and commitment to ESG. The strategic conversion of assets, proactive capital management, and focus on sustainability underscore its appeal to investors seeking defensive income and long-term value. While tenant concentration remains a risk, the REIT’s high occupancy, prudent leverage, and forward-looking ESG initiatives position it as an attractive option for income-focused and ESG-conscious investors.