Tax expense, meanwhile, was 14% lower y-o-y due to higher interest deduction and higher capital allowance claims from sustainability enhancement works, says Natarajan.
With "no major earnings changes", Natarajan expects 6% DPU CAGR between FY2024 and FY2027 from lower borrowing and vacancy costs.
Elite UK REIT has applied to convert Lindsay House, Dundee into a 168-bed purpose-built student accommodation (PBSA) with approvals expected by 2H2025.
The REIT expects to pump in GBP14 million to GBP15 million capex to repurpose the vacant asset into a PBSA and expects return on investment (ROI) in the teens.
Capex will be potentially funded via debt; the REIT is also exploring the possibility of bringing in equity partners by selling a stake.
See also: Elite UK REIT eyes diversification in rental income sources
The asset has been identified for repositioning due to its superior location advantages, flanked by two major universities and limited PBSA supply in the market, according to management.
Elite UK REIT also disposed of Crown Buildings, Caerphilly at an 18% premium to valuation during the quarter, bringing a total of nine disposals since 2023 at 14% premium.
It is in the process of disposing Victoria Road, Kirkcaldy and exploring the repositioning of Cambria House, Cardiff into a PBSA.
See also: Elite UK REIT reports DPU of 0.76 pence for 1QFY2025, up 9.6% y-o-y
Management is committed to its plan to early renew 25% to 30% of its anchor government tenant leases (99% of income) this year and mitigate concentration risk.
Elite UK REIT has also secured 120 mega volt amps (MVA) of power supply for Peel Park, Blackpool site in February for a planned hyperscale and artificial intelligence-enabled capacity data centre.
The planning application has been submitted to local authorities and is currently in its final stages.
Natarajan believes Elite UK REIT is likely to monetise the land value by selling to a third party or hyperscale player at a good premium, considering the huge capex requirements for developing a data centre.
Such a sale could raise proceeds of above GBP20 million, in his view, thereby reducing the gearing closer to its 40% target level.
Phillip Securities' Liu Miaomiao, too, is staying "buy" on Elite UK REIT with an unchanged 35 pence target price, identical to RHB.
"We expect valuations to remain resilient, with a positive uplift in FY2025, supported by Elite's active lease renewal negotiations with the Department of Work and Pensions. Additionally, Bank of England Governor Andrew Bailey signalled the potential for up to four 25 bps rate cuts in 2025, contingent on sustained inflation moderation, provides further support," writes Liu in a May 2 note.
Due to recent market volatility surrounding US tariffs, Liu does not expect Elite UK REIT to embark on any "near-term acquisition plans". "As a result, gearing is expected to trend to below 40% following the successful divestment of Peel Park, [down from] 42.2% in 1QFY2025."
As at 11.40am, units in Elite UK REIT are trading flat at 29.5 pence.
