Q4 23 Valuation and Portfolio Update

Regional REIT Limited

02 February 2024

 

2 February 2024

REGIONAL REIT Limited

("Regional REIT", the "Group" or the "Company")

Q4 Trading Update and Year-End Portfolio Valuation

98.6% Rent Collection for 2023

Regional REIT (LSE: RGL) today announces its portfolio valuation as at 31 December 2023 and a positive update for both EPC ratings and rent collections.

Full Year 2023 Valuation and Portfolio Update

·    Portfolio valuation £700.7m (2022: £789.5m)

·   The like-for-like value of the portfolio decreased by 5.9% from 30 June 2023 to 31 December 2023 after adjusting for capital expenditure, acquisitions and disposals during the period (5.5% excluding capital expenditure adjustment)

·   Total rent collection for 2023 is currently 98.6% compared with 97.9% for the equivalent period in 2022

·    Gross annualised rent roll £67.8m (2022: £71.8m); ERV £87.0m (2022: £92.0m)

·    Equivalent Yield 9.9% (2022: 9.0%)

·    Excellent progress on EPC ratings with c.73% of the portfolio EPC C or better

·    144 properties (2022: 154); 978 occupiers (2022: 1,076)

·    Total disposals in 2023 of £26.1m (before costs)

·    Portfolio: offices (by value) at 92.1% (2022: 91.8%), industrials 3.2% (2022: 3.1%), retail 3.1% (2022: 3.6%), and Other 1.7% (2022: 1.4%)

·    England represented 78.4% (2022: 78.3%) (by value), Scotland 16.2% (2022: 16.7%) and Wales 5.4% (2022: 5.0%)

·    EPRA Occupancy (by ERV) at 80.0% (2022: 83.4%)

·    Average lot size c. £4.9m (2022: c. £5.1m)

·    Net loan-to-value ratio 55.1% (2022: 49.5%)

·    Group cost of debt (incl. hedging) 3.5% pa (2022: 3.5% pa) - 100% fixed and hedged

·    Weighted average debt duration 3.5years (2022: 4.5 years)

Stephen Inglis, CEO of London and Scottish Property Investment Management, the Asset Manager, commented:

"2023 was one of the most challenging years for REITs in recent memory and Regional REIT was not immune from the macro-economic difficulties faced by the sector. Whilst valuations have been impacted, the Asset Manager's active asset management initiatives continued to mitigate some of the impact on the portfolio. The leasing market was slower than anticipated largely due to the uncertainty around working patterns and the geopolitical situation impacting inflation and interest rates, but with some stability we are witnessing increasing numbers of enquiries for our assets.

"Notably, the Company continued to achieve a strong level of rent collection thanks to its high-quality tenant base. The ongoing asset disposal programme continues to achieve the latest valuations.

"It is pleasing to note that substantial progress has been achieved in improving the EPC rating of the portfolio. Over the course of 2023 the number of properties rated EPC C and above has improved to in excess of 73% of the portfolio.

"The LTV continues to be a key focus of the Board and the management have a plan to reduce LTV to the long term target of 40% through selective sales and repayment of debt. The senior debt is 100% fixed, swapped or capped and will not exceed 3.5%. The Company is actively exploring a range of refinancing options for the retail bond given its near-term maturity date."

Rent Collection 2023 Update

The Company is pleased to report that as at 30 January 2024, Q1 2023 collections amounted to 99.7%, Q2 2023 to 98.5% and Q3 2023 to 98.2%. Currently, Q4 2023 rent collection, adjusting for monthly rent stands at 98.1%, which is above the equivalent period in 2022, when 95.6% had been collected. The total rent collection for 2023 is currently at 98.6% (see below) compared with 97.9% this time last year.

%	Q1 2023	Q2 2023	Q3 2023	Q4 2023	YTD
Rent paid	99.7	98.4	98.1	97.3	98.4
Adjusted for monthly rents	0.0	0.0	0.1	0.7	0.2
	99.7	98.5	98.2	98.1	98.6

Table may not sum due to rounding.

The Company remains supportive of its tenants and is in ongoing discussions with occupiers regarding the balance of the outstanding rent. It expects to collect the vast majority of the outstanding rent in due course.

Quarterly rental collection refers to all invoices issued during the calendar quarters:

Q1: 1 January 2023 to 31 March 2023

Q2: 1 April 2023 to 30 June 2023

Q3: 1 July 2023 to 30 September 2023

Q4: 1 October 2023 to 31 December 2023

EPC update

During the quarter we have continued to improve the portfolio EPC ratings and the Company remains on target to achieve EPC B rating by 2030 in accordance with current guidelines.

Rating	31-Dec-22	31-Dec-23	Movement
B plus and Exempt	23.6%	42.1%	+18.50pps
C	33.3%	31.6%	(1.70)pps
D	27.2%	15.7%	(11.50)pps
E and below	16.0%	10.6%	(5.40)pps

Excluding Scotland:

Rating	31-Dec-22	31-Dec-23	Movement
B plus and Exempt	25.1%	42.9%	+17.80pps
C	33.5%	32.4%	(1.10)pps
D	28.0%	15.8%	(12.20)pps
E and below	13.4%	9.0%	(4.40)pps

pps: percentage points

Sales

Total disposals in the year to 31 December 2023 amounted to £26.1m (before costs), broadly in line with the respective valuation points and reflecting a net initial yield of 4.5% (7.9% excluding vacant units).

Further Background Information

Lettings Update - Summary of Activity since 30 September 2023:

Since 30 September 2023, notable new lettings in aggregate amounted to c.£0.9m of new rent and aggregate lease renewals amounted to c. £1.5m, reflecting in aggregate an increase of a 6.7% above 30 June 2023 ERV.

·    Columbus House, Coventry - Shell Energy Retail Ltd. has taken assignment of lease and renewed for a further two years from January 2024, at a rental income of £908,500 pa (£17.06/ sq. ft.) on 53,253 sq. ft. of space.

·    Norfolk House, Birmingham - Existing tenant Global Banking School Ltd. has let an additional 29,383 sq. ft. of space at a rental income of £558,277 (19.00/ sq. ft.). The lease is to December 2037, with a break option in 2032 to be coterminous with the existing lease of ground, first and third floors.

·    Kingscourt Leisure Complex, Dundee - 29,626 sq. ft. of previously vacant space has been let to The Original Bowling Company Ltd. The annual rent amounts to £166,000 pa (£5.60/ sq. ft.), with a 15-year lease.

·    Hampshire Corporate Park, Eastleigh - Silverstream Technologies (UK) Ltd. has leased 4,400 sq. ft. of space for 10 years with a break option in 2028 at a rent of £127,339 pa (£28.94/ sq. ft.).

·    Aspect House, Bennerley Road, Nottingham - Nottingham Citycare Partnership CIC has leased 3,750 sq. ft. of space until May 2024 at a rent of £132,768 pa (£35.40/ sq. ft.).

·    Lightyear - Glasgow Airport, Glasgow - Loganair Ltd. renewed its lease for a further 10 years, to November 2033, at a rental income of £259,445 pa (£18.11/ sq. ft.) on 14,330 sq. ft. of space.

·    St James Court, Bristol - Thomas Silvey Ltd. renewed its lease for a further five years, to December 2028, at a rental income of £82,624 pa (£16.00/ sq. ft.) on 5,164 sq. ft. of space.

·    Salamander Quay, Bankside, Harefield - Alcatel IP Networks Ltd. renewed its lease for a further 10 years, to October 2033 with a break option in 2028 at a rental income of £136,000 pa (£20.12/ sq. ft.) on 6,759 sq. ft. of space.

·    The Royals, Altrincham Road, Manchester - Match Me Finance Ltd. has leased 5,814 sq. ft. of space for 10 years with a break option in 2028 at a rent of £92,553 pa (£15.92/ sq. ft.).

Forthcoming Events

22 February 2024        Q4 2023 Dividend Declaration Announcement

26 March 2024            Full year 2023 Preliminary Results Announcement

22 May 2024               May 2024 Trading Update and Outlook Announcement

                                    Q1 2024 Dividend Declaration Announcement

23 May 2024               Annual General Meeting

Note: All dates are provisional and subject to change.

- ENDS -

Enquiries:

Regional REIT Limited
Press enquiries through Buchanan
ARA Europe Private Markets Limited	Tel: [phone]
Investment Adviser to the Group
Adam Dickinson, Investor Relations
London & Scottish Property Investment Management	Tel: [phone]
Asset Manager to the Group
Stephen Inglis
Buchanan Communications	Tel: [phone]
Financial PR
Charles Ryland, Henry Wilson, George Beale

About Regional REIT

Regional REIT Limited ("Regional REIT" or the "Company") and its subsidiaries (the "Group") is a United Kingdom ("UK") based real estate investment trust that launched in November 2015. It is managed by London & Scottish Property Investment Management Limited, the Asset Manager, and ARA Europe Private Markets Limited, the Investment Adviser,

Regional REIT's commercial property portfolio is comprised wholly of income producing UK assets and comprises, predominantly of offices located in the regional centres outside of the M25 motorway. The portfolio is geographically diversified, with 144 properties, 978 occupiers as at 31 December 2023, with a valuation of c.£700.7m.

Regional REIT pursues its investment objective by investing in, actively managing and disposing of regional core and core plus property assets. It aims to deliver an attractive total return to its Shareholders, targeting greater than 10% per annum, with a strong focus on income supported by additional capital growth prospects.

The Company's shares were admitted to the Official List of the UK's Financial Conduct Authority and to trading on the London Stock Exchange on 6 November 2015. For more information, please visit the Group's website at www.regionalreit.com .

Cautionary Statement

This document has been prepared solely to provide additional information to Shareholders to assess the Group's performance in relation to its operations and growth potential. The document should not be relied upon by any other party or for any other reason. Any forward looking statements made in this document are done so by the Directors in good faith based on the information available to them up to the time of their approval of this document. However, such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.

ESMA Legal Entity Identifier ("LEI"): 549300D8G4NKLRIKBX73

 

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