KGI starts Elite UK Reit at ‘outperform’ with £0.37 target on strong growth prospects

KGI Securities has initiated coverage on Elite UK Real Estate Investment Trust (Reit) with an “outperform” rating while highlighting it as a high-yielding Reit with government-backed cashflow.

Its 12-month price target of £0.37 implies an upside of 27.6 per cent from the counter’s Dec 17 closing price of £0.27, and 37.7 per cent after accounting for distributions.

In a report on Wednesday (Dec 18), KGI analyst Alyssa Tee said she liked Elite UK Reit for its portfolio resilience, strong occupancy rate growth, as well as improved borrowing costs and distribution growth as evident in the Reit’s latest third quarter and nine month financials.

She foresees “strong growth” to be supported by the Reit’s secure government-backed income, given how the bulk (99.1 per cent) of its gross rental income is derived from the UK government.

This is further backed by its manager’s strategy of exploring alternative revenue streams, such as converting office spaces into student accommodations with a focus on properties near Russell Group universities.

In Tee’s view, such a “proactive approach” by the manager will position the Reit to leverage rental reversions and capitalise on expiring leases to drive near-term revenue growth.

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“The Reit has also expanded its investment mandate to living sector assets such as student housing, which could reduce tenant concentration over time,” said the analyst.

Its pound sterling-denominated operations and revenue generation further helps to minimise currency risk, she added.

The analyst is also positive on Elite UK Reit’s latest data centre development at Peel Park, Blackpool, which she believes to represent a “significant growth opportunity” as a low-emission data centre.

“Classified as ‘critical national infrastructure’, the development offers long-term value maximisation for unitholders through strategic divestment or partnerships with data centre operators,” said Tee.

Units of Elite UK Reit were trading £0.005 or 1.7 per cent higher at £0.295 as at 11.40am on Wednesday.