Elite UK REIT is “progressing on its plans”, expanding its mandate while removing refinancing risks until 2027 at “competitive rates”, says RHB Bank Singapore analyst Vijay Natarajan.
Distribution per unit (DPU) of 1.40 pence (2.35 cents) for 1HFY2024 ended June 30 was down 19.5% y-o-y, but this was still a slight beat, says Natarajan, thanks to lower-than-expected operating expenses.
In an Aug 8 note, Natarajan is staying “buy” with an unchanged target price of 31 pence, which represents a 19% upside.
Elite UK REIT has received good offers for three vacant assets and is currently evaluating and exploring options for conversion on remaining four assets.
The REIT has renewed two expiring leases so far in 2024 with a 10-year extension secured on Dallas Court, Salford at a more than 30% increase in rent while Newport Road, Cardiff secured a short-term lease extension until March 2025.
With this, only 1.1% of leases by income are due for renewal before April 2028.
See also: Elite UK REIT posts 1HFY2024 DPU of 1.40 cents, down 19.5% y-o-y
Elite UK REIT is currently engaging in early dialogues with its key tenant, the Department of Works and Pension (DWP), to extend and diversify its concentration of lease expirations in 2028 with an aim to renew it by end-2026.
The REIT’s Peel Park Data Centre plans are in progress with management looking at increasing available power capacity to 120 megavolt-amperes (MVA) from the current 60MVA in order to fit hyperscale needs.
Management says it will explore all options for redevelopment with potential partners, including selling the development rights to third parties thereby monetising the potential, according to Natarajan.
See also: Elite UK REIT ‘future-proofing’ with expanded mandate: CGSI
No refinancing until 2027
The REIT secured GDP215 million in sustainability-linked facilities, which will replace all its debt maturing between 2024 and 2026. This means the REIT has no refinancing needs until 2027.
In addition, Elite UK REIT has flexibility with options to extend the loans for another two years, notes Natarajan.
The loans will carry a spread of 100 basis points (bps) over the Sterling Over Night Indexed Average (SONIA), which is currently at 4.95% with some potential savings if certain sustainability goals are achieved.
Management plans to hedge 50% to 65% of this at “an appropriate time” and based on current market conditions, a three-year hedge would result in interest costs below 5%, says Natarajan.
Elite UK REIT has been paying out 90% of its distributable income since last year. This was a prudent move then, says Natarajan, in light of uncertainties from high gearing and debt refinancing.
But with most of these issues addressed, it is currently considering a possible increase in the payout ratio, he adds. “Our current forecasts only factor 90% payout and an increase will have a proportionate positive effect on our DPU.”
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Elite UK REIT’s net gearing was 10bps lower q-o-q to 41.4% with management targeting to bring it below 40% levels.
“We have slightly lowered our FY2024 revenue by lowering other income and revised our full-year valuations to slight gain from slight loss,” says Natarajan.
He forecasts a reported net profit of GBP17.9 million for FY2024 ending Dec 31, up from a GBP22.2 million loss in FY2023. Elite UK REIT reported a loss after tax of GBP31.1 million for FY2023.
As at 3.43pm, units in Elite UK REIT are trading flat at 26 pence.
