Elite UK REIT - Divestment reflects attractive asset valuation

What happened?

Elite UK REIT (Elite) has announced the divestment of a vacant property Sidlaw House, Dundee, Scotland for £1.28 million. This is 41.7% above valuation of £0.9 million. The proceeds will be used for debt repayment. 

Separately, Elite has submitted a planning application for a data centre development site at Peel Park, Blackpool. 

The site and the existing buildings beside it are located on 15.65 hectares of freehold land, which is strategically located near transatlantic subsea internet cable linking Blackpool with North America and Europe.

Our Quick Take

We reiterate our view that Elite has potential for upward asset repricing, as

1. Valuation of REIT asset is geared to the underlying cash flow that the assets generate. Potential buyers looking for owner-occupation might accord it a higher value. The portfolio’s high NPI yield underscores the attractive valuation to potential buyers.

2. Interest rates are expected to fall, which could lead to cap rate compression.

3. Elite is actively negotiating lease renewals/extensions.

4. Conversion of use of existing assets could lead to re-rating of the assets.

What would Beansprout do?

We maintain our BUY rating on Elite with a target price of £0.44. Our target price translates into distribution yield of 7.0% and 7.8% for FY24E and FY25E, respectively. 

The REIT is currently trading at 9.8% and 10.9% distribution yield for the two years, respectively.

Read our earlier report Elite UK REIT: Room for positive asset repricing to learn more about the prospects of Elite UK REIT.

Related Links:

• Elite UK REIT share price history and share price target
• Elite UK REIT dividend history and dividend forecasts

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