“We expect interest costs to be relatively flat at current levels due to a slightly more hawkish inflationary outlook in the UK on the back of the Middle East war,” says Natarajan.
Meanwhile, the latest re-gearing exercise, which saw about 64% of the leases by income expiring in April 2028 being extended by 7-10 years, beats Natarajan’s expectations.
“This also reflects further valuation growth potential if Elite UK REIT secures lease extensions for the remaining 32% of leases, which are set to expire in April 2028. The valuation increase has also brought down net gearing to a comfortable 37.4% from 40.7% and an 13% increase in NAV to £0.45 per unit,” Natarajan adds.
For the potential divestment of Peel Park, Natarajan mentions that Elite UK REIT’s management team has set a target to complete the divestment by the end of this year.
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“We expect such a sale to possibly net £20-30 million in gains, further reducing Elite UK REIT’s gearing and providing debt headroom for accretive acquisitions,” the analyst predicts.
At the same time, the conversion of Lindsay House in Dundee into a 170-bed purpose-built student accommodation (PBSA) facility is on track, with targeted student intake slated for the 2027 academic year.
“Elite UK REIT expects yield-on-cost of around 7% on its £15-17 million capex and ROI of about 20%. Plans are currently underway to convert Cambria House, Cardiff, into a 348-bed PBSA,” the analyst adds.
As such, Natarajan tweaks his DPU forecast for FY2026, FY2027 and FY2028 by 0%, -1%, and +1%, factoring in divestments and lower vacancy costs. “Our target price of £0.41 includes a 0% ESG premium/discount, given Elite UK REIT's 3.1 score is on par with the country median,” he concludes.
Meanwhile, in his April 27 report, PhillipCapital analyst Hashim Osman states that Elite UK REIT’s 1QFY2026 revenue and adjusted net property income (NPI) rose 1.2% and 4% respectively to £9.4 million and £9.1 million, which forms 25% and 27% of his FY2026 forecast.
“Distributable income increased 9.8% y-o-y to £5.3 million. The increase was driven by positive rental reversions, contributions from 3 acquisitions (Priory Court, Custom House, Merlin House) in FY2025, and falling financing costs through debt repayment,” the analyst states.
According to Hashim, Elite UK REIT’s borrowing cost is stable at 4.7%, with 92% of debt at fixed rate (85% fixed as of last December). Interest coverage ratio is stable q-o-q at 2.6 times.
As such, he maintains a “buy” call with unchanged DDM-based target price of £0.41 for Elite UK REIT. His estimation of FY2026 DPU to be at 3.06 pence, which accounts for lower rental income from assets that may not be re-geared with DWP.
“Approximately 20% of the remaining 30% of DWP’s leases are expected to be re-geared, with the remaining assets likely to be repositioned or divested. Elite UK REIT is trading at a 9.0% FY2026 dividend yield, and a Price/NAV of 0.87 times.
Units of Elite UK REIT closed unchanged at £0.345 on April 28.
