Comprehensive Analysis of Elite UK REIT and Its Peer Companies

Date of Report: November 5, 2024

Broker Name: CGS International Securities Pte. Ltd.

Introduction

Elite UK REIT has been making significant strides in the real estate sector, and this report provides an in-depth analysis of its performance and that of its peers. The insights are based on the latest data available, offering a comprehensive overview for investors and stakeholders.

Elite UK REIT: Taking the Right Steps Forward

Elite UK REIT (ELITE) reported a slight 1.7% year-over-year decline in 9M24 revenue to £28 million. However, the 9M24 distributable income came in at £14 million, marking a 2.8% increase year-over-year. The 9M24 Distribution Per Unit (DPU) of 2.13 pence is 3.9% higher than the previous year, thanks to higher distributable income and tax savings.

3Q24 Business Update Highlights

ELITE concluded £1.4 million of dilapidation settlements for vacant assets year-to-date. The company is in the process of asset repositioning and expanding its investment strategy, with potential divestments and repositioning of properties like Ladywell House in Edinburgh and Lindsay House in Dundee.

Portfolio Performance

The portfolio occupancy increased quarter-over-quarter to 93.9% at the end of 3Q24, up from 92.3% in 2Q24. ELITE completed the lease renewal for Theatre Buildings, Billingham, with a positive rental reversion of 5.3%. In October 2024, ELITE divested Sidlaw House in Dundee for £1.3 million, which was 42% above the June 2024 valuation.

Debt and Refinancing

ELITE’s gearing stood at 45.5% at the end of 9M24, with an interest coverage ratio of 3.0x. The funding cost declined from 5.2% at the end of 1H24 to 5% at the end of September 2024. The company has completed refinancing for all debts due between 2024 and 2026 via a £215 million sustainability-linked term and revolving loan facilities, with two-year extension options. This provides flexibility to manage its debt maturity profile beyond the initial term of 39 months, maturing in 2027.

Future Prospects

ELITE is trading at an attractive FY24F dividend yield of 9.3%. Potential re-rating catalysts include the earlier-than-expected resumption of a higher dividend payout ratio and faster-than-projected capital recycling activities. However, downside risks include tenant concentration exposure to the Department for Work & Pensions (DWP) and higher-than-projected interest rate trends.

SREIT Peer Comparison

Hospitality Sector

Several companies in the hospitality sector have shown varying degrees of performance:

CapitaLand Ascott Trust (CLAS SP)

CapitaLand Ascott Trust reported a share price of £0.91 with a target price of £1.18 and a market cap of \$2,606 million. The trust has a dividend yield forecast of 6.7% for FY24F, 6.9% for FY25F, and 7.6% for FY26F.

CDL Hospitality Trust (CDREIT SP)

CDL Hospitality Trust has a share price of £0.93 and a target price of £1.16, with a market cap of \$886 million. The dividend yield forecasts are 5.8% for FY24F, 6.8% for FY25F, and 6.7% for FY26F.

Far East Hospitality Trust (FEHT SP)

Far East Hospitality Trust’s share price stands at £0.63 with a target price of £0.78 and a market cap of \$955 million. The projected dividend yields are 6.7% for FY24F, 6.8% for FY25F, and 6.8% for FY26F.

Frasers Hospitality Trust (FHT SP)

Frasers Hospitality Trust, which is not rated, has a share price of £0.48 and a market cap of \$675 million. The dividend yields are forecasted at 4.7% for FY24F, 5.0% for FY25F, and 5.2% for FY26F.

Industrial Sector

The industrial sector has shown resilience and growth, with notable performances from several companies:

AIMS AMP Capital Industrial REIT (AAREIT SP)

AIMS AMP Capital Industrial REIT, not rated, has a share price of £1.28 and a market cap of \$758 million. The dividend yields are projected at 7.8% for FY24F, 7.5% for FY25F, and 7.6% for FY26F.

CapitaLand Ascendas REIT (CLAR SP)

CapitaLand Ascendas REIT has a share price of £2.70 with a target price of £3.23 and a market cap of \$9,015 million. The dividend yields are forecasted at 5.7% for FY24F, 5.8% for FY25F, and 6.0% for FY26F.

Cromwell European REIT (CERT SP)

Cromwell European REIT’s share price stands at £1.65 with a target price of £1.92 and a market cap of \$1,012 million. The projected dividend yields are 8.7% for FY24F, 8.2% for FY25F, and 7.5% for FY26F.

ESR-LOGOS REIT (EREIT SP)

ESR-LOGOS REIT has a share price of £0.28 with a target price of £0.36 and a market cap of \$1,637 million. The dividend yields are forecasted at 7.9% for FY24F, 7.9% for FY25F, and 8.0% for FY26F.

Frasers Logistics & Commercial Trust (FLT SP)

Frasers Logistics & Commercial Trust has a share price of £1.07 with a target price of £1.35 and a market cap of \$3,053 million. The dividend yields are projected at 6.3% for FY24F, 6.4% for FY25F, and 6.6% for FY26F.

Keppel DC REIT (KDCREIT SP)

Keppel DC REIT’s share price stands at £2.27 with a target price of £2.34 and a market cap of \$2,974 million. The projected dividend yields are 4.0% for FY24F, 4.4% for FY25F, and 4.6% for FY26F.

Mapletree Industrial Trust (MINT SP)

Mapletree Industrial Trust has a share price of £2.43 with a target price of £2.82 and a market cap of \$5,247 million. The dividend yields are forecasted at 5.5% for FY24F, 5.7% for FY25F, and 5.8% for FY26F.

Mapletree Logistics Trust (MLT SP)

Mapletree Logistics Trust’s share price stands at £1.34 with a target price of £1.73 and a market cap of \$5,135 million. The projected dividend yields are 6.7% for FY24F, 6.0% for FY25F, and 5.6% for FY26F.

Sabana Shariah Compliant Industrial REIT (SSREIT SP)

Sabana Shariah Compliant Industrial REIT, not rated, has a share price of £0.36 and a market cap of \$309 million. The dividend yields are forecasted at 7.9% for FY24F, 7.9% for FY25F, and 8.2% for FY26F.

Office Sector

The office sector has shown moderate performance with the following companies:

Keppel REIT (KREIT SP)

Keppel REIT has a share price of £0.91 with a target price of £1.15 and a market cap of \$2,633 million. The dividend yields are projected at 6.6% for FY24F, 6.8% for FY25F, and 6.9% for FY26F.

OUE Commercial REIT (OUEREIT SP)

OUE Commercial REIT has a share price of £0.29 with a target price of £0.34 and a market cap of \$1,210 million. The dividend yields are forecasted at 7.0% for FY24F, 7.1% for FY25F, and 7.4% for FY26F.

Suntec REIT (SUN SP)

Suntec REIT’s share price stands at £1.18 with a target price of £1.38 and a market cap of \$2,615 million. The projected dividend yields are 5.3% for FY24F, 5.6% for FY25F, and 6.1% for FY26F.

Retail Sector

The retail sector has shown a mix of performances with the following companies:

CapitaLand Integrated Commercial Trust (CICT SP)

CapitaLand Integrated Commercial Trust has a share price of £2.04 with a target price of £2.45 and a market cap of \$11,288 million. The dividend yields are forecasted at 5.3% for FY24F, 5.6% for FY25F, and 5.9% for FY26F.

Frasers Centrepoint Trust (FCT SP)

Frasers Centrepoint Trust’s share price stands at £2.19 with a target price of £2.68 and a market cap of \$3,013 million. The projected dividend yields are 5.5% for FY24F, 5.5% for FY25F, and 5.6% for FY26F.

Lendlease Global Commercial REIT (LREIT SP)

Lendlease Global Commercial REIT has a share price of £0.59 with a target price of £0.71 and a market cap of \$1,063 million. The dividend yields are forecasted at 6.6% for FY24F, 6.8% for FY25F, and 6.8% for FY26F.

Mapletree Pan Asia Commercial Trust (MPACT SP)

Mapletree Pan Asia Commercial Trust has a share price of £1.30 with a target price of £1.53 and a market cap of \$5,193 million. The projected dividend yields are 6.9% for FY24F, 6.2% for FY25F, and 6.4% for FY26F.

Paragon REIT (PGNREIT SP)

Paragon REIT’s share price stands at £0.87 with a target price of £0.92 and a market cap of \$1,877 million. The projected dividend yields are 5.1% for FY24F, 5.4% for FY25F, and 5.7% for FY26F.

Starhill Global REIT (SGREIT SP)

Starhill Global REIT has a share price of £0.51 with a target price of £0.60 and a market cap of \$877 million. The dividend yields are forecasted at 7.1% for FY24F, 7.1% for FY25F, and 7.2% for FY26F.

Overseas-centric Sector

The overseas-centric sector includes companies with international portfolios:

CapitaLand China Trust (CLCT SP)

CapitaLand China Trust, not rated, has a share price of £0.76 and a market cap of \$1,139 million. The dividend yields are projected at 8.6% for FY24F, 9.2% for FY25F, and 9.5% for FY26F.

Elite UK REIT (ELITE SP)

Elite UK REIT has a share price of £0.30 with a target price of £0.34 and a market cap of \$228 million. The dividend yields are forecasted at 9.3% for FY24F, 9.3% for FY25F, and 9.7% for FY26F.

Manulife US REIT (MUST SP)

Manulife US REIT has a share price of £0.11 with a target price of £0.22 and a market cap of \$197 million. The projected dividend yields are 0.0% for FY24F, 0.0% for FY25F, and 40.9% for FY26F.

Sasseur REIT (SASSR SP)

Sasseur REIT has a share price of £0.69 with a target price of £0.93 and a market cap of \$648 million. The dividend yields are forecasted at 9.0% for FY24F, 9.4% for FY25F, and 9.9% for FY26F.

Healthcare Sector

The healthcare sector includes Parkway Life REIT:

Parkway Life REIT (PREIT SP)

Parkway Life REIT has a share price of £3.71 with a target price of £4.91 and a market cap of \$1,704 million. The dividend yields are projected at 4.0% for FY24F, 4.1% for FY25F, and 4.5% for FY26F.

ESG Efforts and Future Prospects

ELITE is committed to aligning with the UK Government’s national climate goals to achieve net carbon emissions by 2050. The company has identified key ESG topics, including climate change, energy and greenhouse gas emissions, water and tenant engagement under its Environmental pillar; attracting and retaining talent, employee development and diversity under its Social pillar; and regulatory compliance and anti-corruption under its Governance pillar.

ELITE aims to achieve an EPC rating of B or higher for all properties by 2030 and has committed £14.8 million towards sustainability enhancement works over three years from 2022. About 98.7% of its portfolio by gross rental income has green clauses as of end-FY23.

Conclusion

Elite UK REIT and its peers in the SREIT sector have shown resilience and strategic growth in various facets of their operations. With a focus on sustainable growth and prudent capital management, these companies are well-positioned to deliver long-term value to their stakeholders. Investors should keep a close watch on these developments as they navigate the evolving real estate landscape.