The most recent lease regear with the Department for Work and Pensions (DWP) was a very big milestone for his team this year, according to Liaw, as it allows the REIT’s weighted average lease expiry (WALE) to extend from 2.2 years to 6.9 years, with 2028 lease expiry exposure materially reduced to just 32%.
“The large lease expiry has always been a concern to the market since our IPO six years ago. Now, with the majority of the leases regeared to between seven and 10 years, this helps to spread the risk and smoothen the lease profile,” Liaw adds.
Data Centre at Peel Park, Blackpool
Although the REIT is now on a more stable financial footing, Liaw is not resting on his laurels and has adopted a repositioning strategy for some of the assets within the REIT’s portfolio.
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One such asset is Peel Park, located at Blackpool, which comprises 37 acres of freehold land and received planning approval in February where a proposed state-of-the-art data centre facility can be developed on about 20 acres of land.
“We have been able to increase the valuation of these assets due to our creativity and we think that Peel Park can become a crucial data centre as well,” Liaw adds. Peel Park’s valuation has risen 82% since Dec 31, 2023 to GBP44.0 million ($75.43 million) as at Feb 28.
While data centres are one of the hottest asset classes right now, Liaw is not expecting the REIT to become a data centre developer and will prefer a divestment to realise the value for the REIT.
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“We are not data centre experts and we won’t want to mess it up. So we work with various consultants to help us get to where we are today. They advised us on planning, architecture and power utilities connections with respect to the technical aspects of data centres,” says Liaw.
While a few early enquiries are on the table for the Peel Park asset, Liaw prefers a more formal process such as getting consultants on board to maximise the value for the asset. While the entire monetisation process has not fully completed, investors certainly will be asking about the upcoming plans for the deployment of the divestment proceeds.
Liaw notes that while he wants to reinvest the proceeds in equally good opportunities, he cannot time everything perfectly. Therefore, he may consider using the upcoming proceeds to pare down debt.
“Apart from lowering our gearing, we could also reward unitholders with either unit buyback or pay some form of special dividend. However, we have not decided on the exact plans for the use of the proceeds. These are just some of the potential ideas,” Liaw adds.
Living sector: The new growth engine
Apart from repositioning Peel Park to transform into a data centre site, the REIT has also identified both Lindsay House, Dundee and Cambria House, Cardiff for repositioning into the living sector, specifically purpose-built student accommodation (PBSA).
Located in Dundee’s central business district and a few minutes’ walk to Abertay University and University of Dundee, Lindsay House will be redeveloped into a 170-bed project, with an estimated 3.5 times student-to-bed ratio.
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Meanwhile, the planning application for Cambria House is expected to be submitted in the third quarter with a potential of 348 beds and an estimated 6.5 times student-to-bed ratio.
Liaw says that the expansion into the PBSA sector was a complement to the REIT’s existing defensive income stream. “Students still go back to school despite a recession, and also job centres are more well utilised during economic downturn. Therefore, housing is definitely a non-discretionary type of spending.”
He notes that location is also critical for both job centres and student accommodation. “Job centres will need to be within 20 minutes of bus or train travel and therefore they tend to be well located [relative] to key amenities and transportation nodes. This is the same case for student accommodation where it has to be close to train and bus stations and also close to other amenities such as a university.”
A recent CBRE report points out that the supply of PBSA beds in the UK are impacted by various macroeconomic factors such as rising interest rates, construction costs and regulatory constraints, which resulted in a slowing of the PBSA pipeline post-pandemic.
Meanwhile, the three-year average of bed deliveries is under 14,000 beds, which is the lowest in the past 10 years.
Dilapidation settlements
On the topic of dilapidation settlements, Liaw says that it is not something that the REIT would like to receive as it implies that tenants would be leaving the property. “It is basically a form of payment by the outgoing tenant to reinstate the property back to its original lettable condition.”
Liaw adds that the driver of dilapidation settlements often lies with the net internal area; the larger the area, the bigger the dilapidation settlement amount. The other driver is the length of stay in the property.
“If you have been in this property for 20 years, the settlement amount can be costlier than staying in the same property for five years. In some cases, the dilapidation settlement amounts can also be even higher than the valuation of the assets.”
According to Liaw, the dilapidation settlement is one item that is a deterrent to existing tenants as the amount will determine whether the existing tenant will leave the property or stay on and renew their occupancy.
Refinancing plans
While the ongoing repositioning is taking place, Liaw and his team will be focusing on capital management and refinancing of its debt this year. Elite UK REIT will need to refinance GBP50 million worth of revolving credit facilities and GBP160.8 million term loan facilities in 2027.
“This will be the next thing that we will pay more attention to this year. When we did the refinancing back in 2024, I think the longest time that we can stretch the debt maturity was just before the leases were regeared. Now with most of the regearing done in Feb, it forms a good segue to stagger our debt maturity,” Liaw says.
With the embedded extension options, Liaw believes that the base case will be to extend one of the debt tranches where the REIT has the bank’s support. There is also the possibility that different tranches of debt could be staggered into different financial years, providing the REIT with more financial flexibility.
UK politics
The political scene in the UK is one of flux. The Labour Party, led by Prime Minister Keir Starmer, has suffered a notable loss in the recent local council election with the right-wing populist Reform UK Party headed by Nigel Farage and the Greens scoring gains.
When asked on whether the local council election will have an impact on the job centres across the UK, Liaw says that while the Labour Party wants people to go back to work, they are also keen on providing financial assistance. Social welfare was pioneered by the Labour Party more than 100 years ago and Reform UK Party are very supportive of this too.
At the same time, Liaw believes that the UK government still needs an instrument to deliver their policies. “The government’s policies are always to alleviate poverty and increase employment. No party will want more misery and unemployment. Therefore, the likes of job centres will be very much a part of the social fabric in the UK for the foreseeable future.”
Key priorities
Looking ahead, Liaw is focused on completing the regearing of the remaining DWP leases that have not been extended yet, and staggering debt maturities. With these initiatives and barring any material adverse developments, Elite UK REIT’s FY2026 distribution per unit (DPU) is likely to be broadly in line with FY2025.
Apart from regearing and refinancing, Liaw is also looking at the repositioning of various assets within the REIT’s portfolio. “Repositioning is a way to future-proof the REIT. While some of these repositionings take time, if we don’t do it today, we won’t be able to enjoy the benefits in the future,” Liaw says.
At the same time, Liaw hopes to reconstitute the REIT’s portfolio through divestment and reinvestment into accretive opportunities that are in line with its investment strategy and long-term objectives.
“We get enquiries and offers from time to time on some of our assets and we will review them accordingly. We also want to do the right thing by selling assets at peak valuation. That is something that I think the market will see us doing a lot more in the next few months,” says Liaw.
Lastly, he hopes to improve the REIT’s trading liquidity and increase awareness within the investment community. “We have a stabilised income portfolio and investors can participate in the REIT’s future growth. Therefore, I think this is a story that needs to be shouted out loud on a daily basis.”
