Analysts from RHB Bank Singapore and Phillip Securities Research are aligned on Elite UK REIT’s target price following the release of its results for FY2024 ended Dec 31, 2024; both research houses now have a 35 pence (59 cents) target price on the UK-focused S-REIT, which represents a 17% upside from its Feb 11 close price of 30 pence.
Notably, Phillip Securities analyst Liu Miaomiao’s Feb 11 report, lists a number of positives in the REIT’s outlook — justifying her “buy” call and higher target price of 35 pence from 34 pence previously — and zero negatives.
Elite UK REIT’s portfolio valuation rose 1.2% y-o-y to GBP416 million in FY2024, driven by a 36% y-o-y increase in its Peel Park land plot in Blackpool.
The REIT successfully divested three assets in FY2024, generating total proceeds of GBP6.2 million at an average contractual price of 15% above book value. The REIT remains committed to its asset recycling plan, focusing on non-vacant assets in FY2025.
The REIT underwent a name change in May 2024 alongside an expanded investment strategy that now includes purpose-built student accommodation (PBSA) and soon, its Peel Park land plot could house a data centre.
At the release of its results on Feb 10, management said it has secured 120 megavolt-amperes (MVA) of power supply for the latter, while land use regulatory approval is underway.
See also: Elite UK REIT increases 2HFY2024 DPU by 5.8% y-o-y
“The site benefits from a subsea cable that reached landfall in Blackpool in 2022. We believe Elite is likely to monetise the land value by selling to a third party or hyperscale player at a good premium, considering the huge capex required for developing data centres,” says RHB analyst Vijay Natarajan.
Likewise, Natarajan is staying “buy” on Elite UK REIT with an unchanged target price of 35 pence.
Phillip Securities’ Liu also expects Elite UK REIT to divest Peel Park this year for some GBP32.7 million, alongside Caerphilly, which should go for some GBP600,000. “All proceeds from the divestment will be used to pay down debt, potentially lowering gearing to below 40%,” she adds.
See also: Maybank raises Frencken's TP on strong outlook, CGSI lowers TP on lower margins
As at Dec 31, 2024, the REIT’s net asset value per unit was 41 pence, its gearing ratio was 42.5% and its interest coverage ratio was 2.5 times.
Borrowing costs declined by around 30 basis points to 4.9% from 5.2% a year ago. The REIT has no further refinancing requirements until 2027 and all its debt is sustainability-linked.
During the year, Elite UK REIT managed to refinance and hedge 86% of its loan exposure to “competitive” rates, which is expected to result in annual savings of GBP2 million, notes Natarajan.
While the Bank of England recently cut its benchmark rate by 25 basis points to 4.5%, Liu expects “minimal immediate impact”on Elite UK REIT, with the cost of borrowing anticipated to remain at 4.9% in FY2025.
The REIT is also lifting its dividend payout ratio to 95% from 90%, as management guided that the REIT is now in better shape — with asset values stabilising, lower gearing and minimal capex requirements.
This was implemented for 2HY2024 and, coupled with lower interest costs and rental escalations, resulted in adjusted distribution per unit (DPU) rising 6% y-o-y.
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FY2023 DPU was adjusted based on FY2024 weighted average units in issue of 593.4 million.
Elite UK REIT posted DPU of 1.47 pence for 2HFY2024, up 5.8% y-o-y. This brings its full-year distribution to 2.87 pence, up 5% over the preceding FY2023.
Key tenants
Management is in active discussions with its key tenant, the Department for Work & Pensions (DWP), as well as other government tenants, for early lease renewals.
Combined, these tenants account for some 99% of its income, with some 97% of leases set to expire in April 2028. This presents concentration risks and an overhang to share price, says Natarajan.
That said, Elite UK REIT is targeting an early renewal rate of 25% in FY2025. “If it materialises, [it] would be highly positive,” adds Natarajan.
Liu thinks this is Elite UK REIT’s “key share price catalyst for the upcoming financial year”. “The current valuation assumes a non-renewal rate of 25%, significantly higher than the historical average of 5% to 15%.”
Leasing momentum in the UK remains robust, and Elite UK REIT has re-let two non-central London locations at rental reversions of 30% and 5%. This indicates a pick-up in demand, writes Liu.
“Operationally, Elite UK REIT continues to deliver by divesting vacant assets at healthy premiums to valuations, and advancing on redevelopment plans for the remaining assets,” says Natarajan.
Units in Elite UK REIT closed 0.5 pence lower, or 1.6% down, at 30.5 pence on Feb 11.
Table: Phillip Securities
