Over the past two years, Elite UK REIT has strengthened its capital structure, cutting its net gearing ratio by 680 basis points to 40.7% as of June 30 — its lowest since 2023.
In 2024, the only UK REIT listed in Singapore completed a preferential offering that raised gross proceeds of approximately GBP28 million ($48.6 million) while concurrently securing up to GBP215 million of debt from a diversified group of banking partners for refinancing.
Through fundraising and capital recycling from dilapidation settlements and divestments, the manager has reduced borrowings by GBP50 million since 2023.
This includes the divestment proceeds from Hilden House in Warrington and Crown Buildings in Caerphilly in 1HFY2025 for some GBP4 million at an average 7.9% premium above valuation.
“The past couple of years have focused on strengthening our capital structure and preparing for growth,” says Josh Liaw, CEO of the manager, who was appointed in June 2023. “But we can’t simply cut our way to prosperity. Our recent acquisition is our way of signalling that we’re not just about shrinking — we’re ready to grow again, in a strategic, balanced and sustainable manner.”
In June, Elite UK REIT completed a GBP4 million equity fundraising round to partially fund a GBP9.2 million acquisition of three government-leased properties — Priory Court, Custom House and Tŷ Merlin — at a 7.6% discount to average valuation.
The deal was accretive to distribution per unit (DPU), and 1HFY2025 DPU rose 10% y-o-y to 1.54 pence.
Priory Court and Custom House are tenanted to the Home Office, while Tŷ Merlin adds the Department for Environment, Food and Rural Affairs to Elite UK REIT’s tenant mix.
While the Department for Work and Pensions (DWP) remains Elite UK REIT’s biggest tenant, at 92.3% of gross rental income (GRI), the acquisition increased GRI contribution from non-DWP government occupiers by 1.5 times.
Elite UK REIT’s portfolio occupancy improved to 95% after the two divestments and three acquisitions. Excluding assets “undergoing repositioning”, occupancy is around 97%, says Liaw.
Site visit
While on a trip to London, Liaw personally visited Priory Court in Dover. “It didn’t look that big on Google Earth, but it is really huge.”
Priory Court consists of 12 separate buildings arranged on a site of approximately 6.3 acres. It functions as a customs and immigration facility of the UK’s Home Office for the neighbouring Port of Dover.
“Dover faces Calais in continental Europe. It is where the Eurostar tunnel digs into the ground and emerges in France,” says Liaw. “Dover is also traditionally the largest continental port that’s facing Europe, so they have a lot of rollon, roll-off cargo, including a very busy car-ferry service.”
With a net internal area of 72,052 sq ft, it is the largest of the three recent acquisitions, and it sits on 452,083 sq ft of freehold land. The current lease expires in April 2031, but it has the potential for a longer-term lease with the existing tenant, or to be re-let to other port users.
The Home Office shares the property with His Majesty’s Revenue and Customs (HMRC), the UK’s tax, payments and customs authority.
“As we learn more about these assets, we know that their ability to move, to be able to find a similar-sized property, is quite constrained,” says Liaw. “All these indicate that the tenant could extend even beyond their current expiry in 2031.”
The current annual rent at Priory Court is GBP325,000, and the tenant is due for an “upward-only open market rent review” in April 2026.
PBSA foray
Elite UK REIT is also making inroads into its expansion into living assets. About three months after submitting a planning application for Lindsay House in Dundee, Scotland, to be transformed into a 168-bed purpose-built student accommodation (PBSA), the manager received approvals from the local authority in July.
Dundee is experiencing a significant shortfall in PBSA supply, says Liaw. “Living is underbuilt as a sector; this is probably a tailwind that will last for many years to come. There are not enough rooms for students, so they are then soaking up the usual available stock for residential use, taking that space away from families and local residents.”
Lindsay House is a former government workspace and is within walking distance of leading universities and transportation nodes, including Abertay University, the University of Dundee and Dundee Train Station.
With a combined full-time student population of approximately 16,165 at Abertay University and the University of Dundee in the 2023/2024 academic year, the market’s estimated 4,620 existing PBSA beds represent a student-to-bed ratio of around 3.5 times.
The proposed conversion of Lindsay House will reuse existing structures — reducing project costs and also embodied carbon — and is expected to welcome students from the academic year starting September 2027.
The estimated yield on cost is 7% and the estimated return on investment is around 18%.
Data centre site
In October 2024, Elite UK REIT submitted its planning application for an 80-megawatt data centre at Peel Park, Blackpool, but unlike Lindsay House’s, has not yet received planning approvals.
Still, this timeline “is not out of the ordinary”. Liaw adds: “The planning officer has come on site and made some comments; we’ve addressed them and gone back to them. Now we are waiting eagerly for final approval, which we hope to get later this year.”
The site is located near a transatlantic subsea cable linking North America and Europe. With Peel Park, the manager aims for “long-term value maximisation” either through strategic divestment or partnerships with data centre operators.
Peel Park’s valuation rose 36% y-o-y to GBP32.8 million at end-2024. However, this was based on 60 megavolt-amperes (MVA) of power, before the site securing an additional 60 MVA of power in January. Altogether, the site now has 120 MVA of power.
DBS Group Research, one of seven houses covering Elite UK REIT, notes in an Aug 1 report that the new asset value could “conservatively rise” to an estimated GBP45 million to GBP50 million. “As such, the potential divestment of a stake in this property is likely to serve as a key catalyst.”
Mission-critical infrastructure
Although Elite UK REIT is expanding into the living sector and repositioning Peel Park, Blackpool, its portfolio still predominantly consists of government-leased properties.
The REIT is the largest provider of mission-critical infrastructure to several UK government departments, with the majority of its properties used as Jobcentres, which provide employment support.
This is set to stay, even with any potential changes in the UK government, says Liaw. “I think regardless of whichever political party comes into power in the future, social welfare and the Jobcentres seem to be a cornerstone of the UK political agenda. I don’t think it can be written off easily.”
The UK government is trialling the sharing of properties among different agencies. With demand for medical care outstripping supply, the UK’s National Health Service (NHS) is one potential beneficiary, says Liaw.
The UK’s publicly funded healthcare system may even become a tenant of Elite UK REIT in future. “They need space to expand, and I think some of these centres occupied by the DWP — where they can afford to share space with another user, they can be shared with the NHS for a clinic or an assessment centre.”
The manager is in talks with the DWP to extend leases expiring in 2028, to lengthen the current weighted average lease expiry of 2.9 years. With the UK government as a key tenant, rental income is backed by AA-rated UK sovereign credit with zero arrears, and rent is even collected in advance.
Business as usual
In August, sponsor Elite Partners Holdings purchased fellow sponsor Sunway RE Capital’s 15% stake in the manager. The latter no longer holds any interest in the manager, whose sponsors are now Elite Partners Holdings and Ho Lee Group.
“We’re incredibly grateful for the support that Sunway has extended to Elite UK REIT as its sponsor,” says Liaw. “The REIT is in a better position than it was two years ago, and the manager’s shareholders have mutually agreed on Elite Partners’ purchase of Sunway’s 15% stake.”
Liaw is confident in Elite UK REIT’s counter-cyclical portfolio of 100% freehold and virtual freehold assets with resilient income. “With Elite Partners and Ho Lee remaining as Sponsors since IPO in 2020, coupled with the strong banking relationships that we continue to have, we are well on track to strengthen Elite UK REIT’s portfolio and expand into the living sector.”
He adds: “Investors can rest assured that it’s business as usual at the manager and for the REIT.”
Photos: Albert Chua/The Edge Singapore
