Is Elite UK REIT A Good Buy In 2025? [Fundamental Analysis]

Daniel Lee
May 20
3 min read

In this article, we'll conduct a fundamental analysis and review of Elite UK REIT and its suitability to achieve the following investment objective: To deliver a stable dividend yield of 5% to 6% per year while having high capital preservation ability.

Information Is Accurate Up To April 2025

Business Description

Elite UK REIT is an Office REIT listed in 2020 and mainly owns offices properties across the United Kingdom leased directly to the UK government.

What I Like About Elite UK REIT:

Very stable top-line revenue with more than 99% of gross rental income derived from AA-Credit rated UK Government and rentals are collected three months in advance.

What I Do Not Like About Elite UK REIT:

REIT is relatively new, and their management is unproven. Their performance and decisions thus far have not been very reassuring. In addition to the lack of track record with the existing sector, the decision to expand their investment mandate into areas outside of their circle of competence in a time where they are just getting out of an overleverage situation does raise my eyebrow regarding the management’s decisions.
The poor capital management has resulted in major deterioration in DPU over the years due to higher financing costs and the impact of dilution despite having a stable source of top-line revenue. (Figure 8)
Tenant concentration risk is very high. This affects Elite UK REIT’s bargaining power when renegotiating their lease agreement due to a lowered bargaining power. This may be a notable risk with the UK’s constant budget deficit problem as rental negotiation is an avenue for the government to cut their spending.

Updates From Recent Performance (FY 2024)

General Comments:

Management expanded their investment mandate in April 2024 to allow investments into hospitality and industrial properties.
The management has concluded its capital restructuring with a preferential offer combined with debt refinancing. The aggregate leverage ratio has improved from 50% in FY2023 to 43.40% in FY2024.
DPU from operations decreased by 22.47% while Reported DPU decreased by 36.65% due to lower operating performance coupled with the decrease in one-off dilapidation settlements and a higher unit in issues.

Positive Headwinds:

The cost of borrowing in FY2025 will be stable as there are no refinancing requirements until 2027. Furthermore, the management has the flexibility to execute a 2-year extension option till 2029 if necessary.

Negative Headwinds:

With an increasing uncertainty on the impact of the ongoing trade war, it may impede the effectiveness of management’s decision to expand outside of their existing property profile as they may be exposed to the risk of occupancy volatility – especially in the sectors they are looking to expand into, given that they will be dealing with the private instead of public sector, who are more sensitive to economic cycles.

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