Elite UK REIT - DPU growth from higher payout and interest savings

DPU growth from higher payout and interest savings

Distribution per unit (DPU) increased  by 5.6% year-on-year to 3.03 cents in FY2025.  Besides interest savings through  capital management, the higher DPU was also due to higher payout ratio of 95% in FY2025, from 92.5% in FY2024.   

Based on the closing price of £0.36 on 11 February 2026, Elite UK REIT offers a distribution yield of 8.4%. Referring to our estimates, Elite UK REIT is trading at FY2026E distribution yield of 9.0%.

Improved financial performance  

Revenue increased by 1.3% year-on-year to £38.0 million in FY2025 on the back of rental reversions and contributions from new assets. 

In June 2025, Elite UK REIT completed an acquisition of three properties from the UK government.  It brings in a new high-quality tenant in DEFRA (Department for Environment, Food & Rural Affairs). The transaction is 0.6% DPU accretive and lowers the gearing by about 20 basis points.

Net property income fell 3.7% year-on-year as lower dilapidation settlements and higher asset repositioning costs weighed on property income. 

Interest savings from interest rate optimisation, together with tax benefits from tax planning and sustainability related capex, lifted distributable income by 4.6% year-on-year to £19.3m in FY2025 

Portfolio management targets value creation

Portfolio value rose 2.0% year on year to £424.7m as at 31 December 2025, driven by asset repositioning at Peel Park Blackpool and Lindsay House, Dundee, and the acquisition of three government-leased properties in June 2025.

The portfolio valuation will increase in FY2026 to reflect the new leases signed on 5 February 2026.  The valuation uplift from extending lease terms of up to ten years has yet to be reflected. 

On a proforma basis, taking in the lease regear on DWP-occupied assets, weighted average lease expiry (WALE) improved to 7.2 years as at 31 December 2025, from 3.3 years as at 31 December 2024.   

Separately, the conversion of Lindsay house into a 170-bed PBSA is on track for completion by September 2027. At Peel Park, the application for a data centre development is pending.  In the event that Elite UK REIT could not secure a government occupier, it will divest the site to a third-party developer. 

Updates on lease renewal with UK government for DWP assets 

The lease discussions for DWP-occupied properties have concluded for about 70% of the lease expiries, reducing the rollover risk.

Announced on 6 February 2026, Elite UK REIT has successfully renewed  70% of the DWP-occupied assets for £24.3 million.  The regear has significantly removed the maturity risk in 2028, lowering the expiry exposure to 32.0% of gross rental income.

The lease renewal ranges from 7 to 10 years, extending the portfolio WALE (weighted average lease expiry) to 7.2 years. There are no lease breaks, providing high visibility on the cash flows.  The rent will be reviewed in 2033 on a CPI-linked basis.  The renewal covered 60 assets out of the 99 assets. Negotiations on remaining assets will continue in 2026 and 2027.

The renewal stipulates that Elite UK REIT will contribute a one-time capital incentive of £9.5m over 2026 to 2028.The capital incentive will be deployed towards asset enhancement initiatives.

Strengthens balance sheet 

The next refinancing will occur only in 2027 on facilities with built-in two-year extension options. This provides additional runway till 2029.   

Net gearing edged down to 40.7% as at 31 December 2025, from 42.5% as at 31 December 2024, as prepaid rents were used to reduce borrowings, improving cash efficiency and lowering financing costs. 

All the debt is denominated in GBP, creating a natural hedge and removing effect of foreign currency volatility on the balance sheet.  As the entire debt is sustainability linked, this presents opportunity for potential margin savings tied to improved energy performance. In FY2025, the cost of debt fell by 20 basis point to 4.7%, from 4.9% in the previous year. 

Going forward, the management plans to reduce the proportion of secured debt which accounts for 97.6% of total debt as at 31 December 2025. 

Maintain BUY and target price at £0.44

Elite UK REIT is trading at £0.36, implying FY25 distribution yield of 8.4%. Comparing with other commercial REITs, Elite UK REIT offers an attractive distribution yield.  We expect the FY2026 distribution per unit to increase, driven by full-year contribution of newly acquired assets and interest savings.  At the current price, Elite UK REIT offers FY2026E distribution yield of 8.9%, significantly higher than other REITs in the industrial and living sectors. 

Related links:

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

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