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Continuing to deliver income-led returns

Regional REIT 27 September 2022 Update
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Regional REIT

Continuing to deliver income-led returns

Interim results

Real estate

27 September 2022

Price

62p

Market cap

£320m

Net debt (£m) as at 30 June 2022

396.7

Net LTV as at 30 June 2022

43.2%

Shares in issue

515.7m

Free float

87.4%

Code

RGL

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(13.0)

(17.5)

(29.5)

Rel (local)

(7.6)

(14.6)

(25.4)

52-week high/low

94.5p

61.8p

Business description

Regional REIT is focused on office assets located in the regional centres of the UK, highly diversified by property, tenants and the underlying industry exposure of those tenants. It is actively managed with a strong focus on income and targets a total shareholder return of at least 10% over the longer term.

Next events

Q322 trading update

10 November

Analyst

Martyn King

+44 (0)20 3077 5745

Regional REIT is a research client of Edison Investment Research Limited

With pandemic restrictions lifted and the return to work underway, Regional REIT’s (RGL) H122 results show good and continuing operational progress. The sharp rise in energy prices affected property costs, but this should moderate with government support measures. Combined with income seasonality and fully fixed/hedged borrowing costs, RGL expects a stronger H222 performance and reiterated its full-year DPS target of 6.6p.

Year end

Net rental
income (£m)

EPRA
earnings* (£m)

EPRA
EPS (p)

NAV**/
share (p)

DPS
(p)

P/NAV
(x)

Yield
(%)

12/20

53.3

28.1

6.5

98.6

6.40

0.63

10.3

12/21

55.8

30.4

6.6

97.2

6.50

0.64

10.5

12/22e

62.3

33.5

6.5

97.3

6.60

0.64

10.6

12/23e

64.3

34.5

6.7

97.3

6.70

0.64

10.8

Note: *EPRA earnings exclude revaluation movements, gains/losses on disposal and other non-recurring items. **NAV is EPRA net tangible assets per share.

Encouraging operational progress

With the easing of pandemic restrictions, nearly all tenants have returned to occupation and rent collection is now effectively back to normal, underpinning dividends. H122 occupational demand was strong, with new lettings adding £2.6m of gross rental income when fully occupied, increasing further in Q322 to c £3.3m y-t-d, almost 90% of the full year 2019 total, prior to the pandemic. Capital recycling from lower to higher-yield assets added a net £1.9m pa to income and enhanced overall asset quality. Including the benefit of transactions, EPRA occupancy increased but was lower on a like-for-like basis, reflected in a flat rent roll of c £70m. Like-for-like property gains of 1.0% supported NAV per share, little changed at 97.1p, and DPS paid generated a six-month accounting total return of 3.3%.

Income-led strategy

The sharp increase in energy prices materially increased H122 non-recoverable property costs. Without this, EPRA EPS of 2.9p would have covered DPS of 3.3p. RGL expects property costs to moderate in H222 and to benefit from leasing progress, capital recycling and income seasonality. Meanwhile, borrowing costs are fully hedged at a maximum 3.5%. We expect FY22 DPS to be effectively fully covered despite a reduction in our EPRA earnings forecasts of c 2%. For FY23 we have reduced DPS and earnings growth by 3% and 4% respectively. RGL has consistently targeted a higher-yield portfolio that would provide progressive, regular dividends with the potential for capital growth. Asset yields have been supported by active asset management and capital recycling. The net initial yield is 5.7% but the reversionary yield of 9.2% demonstrates the income potential from letting space into the positive demand-supply conditions that RGL anticipates will continue.

Valuation: High yield despite sustained distributions

RGL continues to offer one of the highest yields in the UK REIT sector, a combination of its consistent income-led strategy and the market valuation of its shares. Its FY22 target DPS of 6.6p reflects a yield of 10.6%, significantly above close peers, and only partly reflected in a narrower discount to NAV.

Strong H122 occupational demand and increasing occupation

With the easing of pandemic restrictions, nearly all tenants (c 99%) have returned to occupation in some form, be it full time or hybrid, while the 14 that have not indicate an intention to shortly do so, and rent collection is now effectively back to normal. Rents due to 30 June 2022 have been 98.7%1 collected, compared with 96.4% in the equivalent period of 2021. Currently, more than 85% of rental income is collected within 30 days of the due date.

  Actual rents collected 98.5% and monthly collections 0.2% with no outstanding agreed collection plans.

H122 occupational demand was strong, with 47 new lettings completed, totalling c 146k sq ft, which when fully occupied will provide an additional gross rental income of c £2.6m pa. Further lettings during Q322 have increased the year-to-date total to 62 lettings with an annualised rental value of c £3.3m, almost 90% of the full-year 2019 total, immediately prior to the pandemic.

The investment market has continued to provide opportunities to accretively recycle capital out of non-core assets and properties where asset management plans have been completed, into higher-yielding, higher-quality assets, adding further diversification of the occupier base. Assets amounting to £78.9m (after costs) were acquired at a blended net initial yield of 8.4% and £71.4m (after costs) of assets sold at a blended yield of 5.5%. The 290-basis point spread between purchases and sales locked in a c £1.9m annualised uplift in gross rental income. Three additional properties with completed business plans have been sold since H122 for an aggregate £7.2m, in line with the 30 June 2022 valuation.

EPRA occupancy increased to 83.8% (end-FY21: 81.8%), including a benefit from the new lettings and from transaction activity (with acquisitions at a higher level of EPRA occupancy than the disposals). On a like-for-like basis the end-FY22 EPRA occupancy rate was 82.1% compared with 86.3% at end-H121, with two properties in particular accounting for c 60% of the decline due to the timing of lease expiry and refurbishment.

The gross rent roll ended the period at £72.1m, a similar level to end-FY21, reflecting a net positive £1.9m impact from acquisitions and disposals as well as new lettings and lease renewals, offset by the impact of lease maturities and terminations. RGL entered FY22 with c £14m (11.5%) of income ‘at risk’ from lease maturities and break options over the following 12 months. During H122, 72.1% of expiries/breaks (by unit) were retained, an increase from 69.6% in FY21.

At end-H122 the portfolio was valued at £918.2m (end-FY21: £906.1m and end-H121: £729.1m). H122 growth included like-for-like revaluation gains of 1.0% and the net initial yield of 5.7% was unchanged on end-FY21. By value, the share of office properties had increased to 92.0%,2 or 91.6% by gross rental income. The portfolio remained strongly diversified by the number of properties (159), property units (1,517) and occupiers (1,086 occupiers) as well as by geography.

  An increase from 89.8% at end-FY21. In addition to offices, H122 valuation comprised industrial (3.1%), retail (3.5%) and ‘other’ (1.4%) properties.

Within its overall ESG framework, RGL is targeting an EPC rating3 of B or better for all properties by 2030 and made good progress in H122. Capex during the period of £3.1m and quality-enhancing transaction activity supported an increase in the proportion of such properties to 13.2% from 9.9% at end-FY21 (EPC A–C 48.0% vs 43.6% at end-FY21). The company expects that most of the further investment required to meet its EPC targets will form part of the existing rolling programme of capital expenditure and H122 investment was consistent with the c £44m allowed for in the external property valuation (and RGL’s internal estimate of c £40m). It is likely that some of this investment will be undertaken by tenants that are also seeking to enhance their environmental performance and we anticipate further disposals of properties and capital recycling.

  Energy Performance Certificate

Positive structural market indicators but economic challenge

More generally across the regional office market, RGL observes an improvement in occupier demand from the pandemic trough. The return to the office is underway but that applies more clearly to tenants rather than employees. Many companies are still in a process of trialling new ways of office working, commonly a hybrid model whereby employees spend perhaps three days per week (typically Tuesday, Wednesday and Thursday) in the office and two days at home. RGL does not expect hybrid working to materially reduce space requirements as it must cater for peak usage. It also notes a growing preference amongst employers to have more staff on site for an increasing amount of time, recognising the collaborative and creative benefits of office working. However, the company continues to believe it will take until the end of 2023 for this balance to be resolved across the market and for market uncertainties regarding the future use of the office, and the demand for office space, to be resolved.

Given its views on future office usage, RGL remains positive about the structural occupational supply-demand balance for secondary regional offices, the market segment in which it invests. It notes that going into the pandemic, supply was tight and although rents had begun to increase, they remained at a relatively low level. Coming out of the pandemic, many occupiers have retained their office space and occupancy remains relatively high. RGL expects that in time, where there is additional demand by occupiers to switch location, upscale or improve the quality of their accommodation to retain or recruit staff, it is likely to meet tight supply, with positive indications for rental growth.

RGL is cognisant of the challenge to this scenario from the generally anticipated economic downturn, but notes that negative impacts would be widely spread across the commercial property market, including some sectors where valuations have recently increased noticeably more strongly than has been the case for offices.

Fixed debt costs and portfolio diversification mitigate macroeconomic risks

A key element of RGL’s strategy since it listed in November 2015 has been to build a diversified portfolio that spreads income risk across a wide range of occupiers operating across a broad spread of industries.

A more immediate challenge to the commercial property sector is the sharp increase in borrowing costs, for which RGL is well placed with all agreed and drawn debt fixed or hedged (with swaps or caps), with a maximum cost of 3.5% for a duration of five years. The earliest maturity is not until August 2024 (the retail eligible bonds).

The weighted average cost of debt increased a little in H122, to 3.5% from 3.3% at end-FY21, as interest rates increased and the interest rate caps were reached, but has now reached its limit.

The net loan to value ratio (LTV) was 43.2%4 at end-H122, slightly up on end-FY21 (42.4%), mostly reflecting net capital investment in the period, but RGL continues to target a reduction towards its c 40% medium-term target. There is a good level of headroom against borrowing covenants that require LTVs at the loan facility level of no more than c 60%. Group level interest cover was 3.0x at 30 June 2022.

  Net borrowings as a percentage of the FY21 externally assessed property value adjusted for subsequent property transactions and capex.

Income-led total returns

RGL came to market in November 2015 targeting a higher yield portfolio that would provide progressive, regular dividends with the potential for capital growth. Active asset management and capital recycling are key elements in sustaining asset yields. RGL’s dividend yield has been consistently one of the highest in the sector and quarterly dividends were maintained during the pandemic, albeit at a reduced level.

Exhibit 1: NAV total return performance*

2015**

2016

2017

2018

2019

2020

2021

H122

Since IPO

Opening EPRA NAV per share (p)

100.0

106.8

106.1

105.4

115.2

112.6

98.6

97.2

100.0

Closing EPRA NTA* per share (p)

106.8

106.1

105.4

115.2

112.6

98.6

97.2

97.1

97.1

Dividends per share paid (p)

0.00

6.25

7.80

8.00

8.20

7.45

6.30

3.35

47.35

Dividend return

0.0%

5.8%

7.4%

7.6%

7.1%

6.6%

6.4%

3.4%

47.4%

Capital return

6.8%

-0.7%

-0.6%

9.2%

-2.3%

-12.4%

-1.4%

-0.2%

-2.9%

NAV total return

6.8%

5.1%

6.7%

16.8%

4.9%

-5.8%

5.0%

3.3%

44.4%

Average annual return (%)

5.7%

Source: Regional REIT data, Edison Investment Research. Note: *NAV is defined as EPRA net tangible assets (NTA) per share. **55 days from 6 November 2021.

The accounting total return5 has been positive in each year since listing, other than in FY20 due to the pandemic. The total return up to end-H122 amounts to 44.4% or an average annual return of 5.7%. Reflecting RGL’s strong income focus, its returns have all been generated by dividends paid with a good level of consistency, as shown in Exhibit 2.

  The change in EPRA NTA/NAV plus dividends paid.

Exhibit 2: Trend in dividend return and capital return

Source: Regional REIT data, Edison Investment Research

Details of the H122 financial results

Despite the operational progress described above, EPRA earnings growth was held back by the increase in non-recoverable property costs, primarily reflecting the impact of increased energy costs relating to vacant space but also ‘shared’ space (such as reception areas or lifts) within properties that are unallocated to tenants. EPRA EPS of 2.9p was below DPS declared of 3.3p, but dividends would otherwise have been covered. RGL is confident of a stronger earnings performance in H222, reflecting normal income seasonality and a lesser impact from energy cost inflation, in part due to government energy cost support. The company remains committed to its full-year DPS target of 6.6p.

Exhibit 3: Summary of H122 financial performance

£m unless stated otherwise

H122

H121

H122/H121

FY21

Rental and other property income

37.1

29.5

25.5%

65.8

Non-recoverable property costs

(8.1)

(4.2)

95.1%

(9.9)

Net rental income

28.9

25.4

14.1%

55.8

Administrative & other expenses

(5.6)

(5.5)

1.7%

(10.6)

Operating profit before gains/(losses) on property

23.4

19.9

17.5%

45.2

Unrealised and realised property gains/(losses)

1.4

2.5

(7.7)

Operating profit

24.8

22.4

37.6

Net finance expense

(8.4)

(6.9)

21.5%

(14.9)

Impairment of goodwill

0.0

0.0

0.0

Change in fair value of interest rate derivative

11.9

2.6

6.0

Profit before tax

28.3

18.0

28.8

Tax

0.0

0.0

0.0

IFRS Net profit

28.3

18.0

28.8

Adjust for:

Unrealised and realised property gains/(losses)

(1.4)

(2.5)

7.7

Change in fair value of interest rate derivative

(11.9)

(2.6)

(6.0)

EPRA earnings

15.0

13.0

15.4%

30.4

Basic IFRS EPS (p)

5.5

4.2

6.3

EPRA EPS (p)

2.9

3.0

-2.7%

6.6

DPS (p)

3.30

3.20

3.1%

6.50

EPRA NTA per share (p)

97.1

99.1

-2.1%

97.2

Accounting total return

3.3%

3.6%

5.0%

Investment properties

918.2

729.1

25.9%

906.1

Net debt

(396.7)

(290.4)

(383.8)

Net LTV

43.2%

39.8%

42.4%

EPRA cost ratio (exc direct vacancy costs)

16.5%

19.9%

16.8%

Source: Regional REIT data, Edison Investment Research

In particular we note:

Rental and other property income of £37.1m increased strongly versus H121, primarily reflecting the increased rent roll during the period, and also increased from H221. End-H122 annualised gross rent roll was £72.0m compared with £61.1m at end-H121 (and £72.1m at end-FY21). Among significant FY21 purchases and sales, the H221 £236m (before costs) acquisition of the Squarestone portfolio added an initial £21.9m to annualised rent roll.

Net rental income of £28.9m was above the H121 level of £25.4m but was lower than in H221 (£30.4m).

Administrative expenses grew modestly year-on-year but included a c £0.8m positive swing in rent receivable provisions from a £0.6m charge in FY21 to a £0.2m gain in H122. The main underlying change year-on-year relates to investment and asset management fees, which have increased in line with higher average net assets and gross rents. Excluding direct vacancy costs the EPRA cost ratio was 16.5% (H121: 19.9%; FY21: 16.8%).

Before property revaluation movements, operating profit increased to £23.4m versus £19.9m in H121, but was slightly lower than in H221 (£25.3m).

Net property valuation gains of £1.4m comprised a £4.8m investment property revaluation gain offset by a loss on disposal of £3.3m (a gain of £0.8m offset by disposal costs of £4.1m) and a negative £0.1m charge on the right of use asset.

Finance expenses increased with higher average borrowings and a slight pick-up in average debt costs as cap rates were reached (limiting a further increase in borrowing costs). IFRS earnings and NAV further benefited from a positive gain in the value of interest rate hedging instruments, reflecting the increase in market interest rates.

Adjusted for valuation movements, EPRA earnings were £15.0m (H121: £13.0m; H221: £17.4m) or 2.9p per share (H121: 3.0p; H221: 3.6p).

Forecasts

Management is confident that H222 earnings will exceed the H122 level, reflecting the usual seasonality in the business, which includes the tendency for non-rental income (such as surrender premiums and dilapidation payments) to be bunched towards year-end. In our revised estimates, higher rental and other income (primarily other income) offset the impact of higher non-recoverable property costs, and with higher interest costs (as the rate caps are reached) EPRA earnings reduce c 2–4% in FY22 and FY23. We have reduced our forecast for the rate of FY23 dividend growth, but cover is effectively maintained throughout the forecast period.

Exhibit 4: Summary of estimates

£m unless stated otherwise

New

Previous

Change

FY22

FY23

FY22

FY23

FY22

FY23

FY22

FY23

Rental & other income

76.8

77.3

73.4

75.7

3.4

1.6

4.6%

2.2%

Non-recoverable property costs

(14.5)

(13.1)

(10.5)

(10.8)

(3.9)

(2.3)

37.3%

21.3%

Net rental income

62.3

64.3

62.8

64.9

(0.5)

(0.7)

-0.8%

-1.0%

Administrative expenses

(11.6)

(12.3)

(11.9)

(12.2)

0.2

(0.1)

-2.0%

0.6%

Net finance expense

(17.2)

(17.5)

(16.9)

(16.9)

(0.3)

(0.6)

1.5%

3.7%

EPRA earnings

33.5

34.5

34.1

35.8

(0.5)

(1.3)

-1.6%

-3.7%

EPRA cost ratio (exc direct property costs)

34.0%

32.8%

30.5%

30.3%

EPRA EPS (p)

6.5

6.7

6.6

6.9

(0.1)

(0.3)

-1.6%

-3.7%

DPS (p)

6.6

6.7

6.6

6.9

0.0

(0.2)

0.0%

-2.9%

Dividend cover (x)

0.98

1.00

1.00

1.01

EPRA NTA per share

97.3

97.3

98.9

101.8

(1.6)

(4.5)

-1.6%

-4.4%

EPRA NTA total return

6.9%

6.8%

8.6%

9.7%

Gross borrowing

(442.9)

(442.9)

(439.9)

(439.9)

Net LTV

42.9%

43.3%

42.4%

42.3%

Shares outstanding

515.7

515.7

515.7

515.7

0.0

0.0

0.0%

0.0%

Average number of shares

515.7

515.7

515.7

515.7

0.0

0.0

0.0%

0.0%

Source: Edison Investment Research

Our key forecasting assumptions include:

No net acquisitions and disposals during H222 and FY23. The £7.2m of disposals since H122 are effectively assumed to be reinvested with no impact on rental income.

An increase in gross rental income driven by a continuing pick-up in leasing activity and higher non-rental income. Although the latter is not broken out separately, we estimate a contribution to FY22 income of c £4.0m.

A slowdown in H222 non-recoverable property costs from the £8.0m reported in H122, which we understand was struck on a conservative basis given the increasing level of uncertainty at the time and the prospect for government relief from energy price increases.

No further increase in the running cost of borrowing during H222 and FY23, at the maximum fixed/hedged rate of 3.5%. Total borrowing costs additionally include amortisation of loan arrangement fees.

No further changes (positive or negative) in like-for-like property valuation through H222 and FY23, despite gains in H122 like-for-like growth in property valuations. Based on our other assumptions, this represents a c 25 basis point (bp) widening of the yield by end-FY23. This may prove conservative if successful leasing by RGL is reflected in the external valuation and/or a positive market demand-supply dynamic lifts market rents. However, we are conscious of the strong possibility that rising UK government bond yields will have a negative impact on sector-wide valuations. We estimate that the impact of an additional 25bp yield widening on our forecast NAV would be a reduction of 5.8p (for both FY22 and FY23) with a similar positive impact should yields tighten.

With EPRA earnings distributed in full and acquisitions and disposals matched by value, our forecast LTV increases slightly (to 43.7%) by end-FY23, rather than declining in line with RGL’s target. Our LTV forecast may similarly be conservative should valuations increase or if RGL is able to further recycle capital from lower-yielding to higher-yielding assets, allowing a net divestment with no impact on portfolio income, and a reduction in net debt. Without assuming management action, we estimate that the impact of an additional 25bp yield widening on our forecast property valuation would be to increase FY22 LTV to 44.4% and FY23 LTV to 44.7%, with a positive impact (lower LTV) should property yields tighten.

Valuation

Based on our FY22 DPS forecast of 6.6p, RGL provides a highly attractive 10.6% dividend yield, one of the highest in the sector, if not the highest.

In Exhibit 5 we show a comparison with a selected group of peers comprising mid-market diversified property investors and focused office sector investors, many of which are significantly larger than RGL with primarily central London exposure. To ease comparison, the data are based on 12-month trailing DPS declared and last published EPTA NTA/NAV. On this trailing basis (and we forecast on a prospective basis), RGL’s dividend yield continues to be at the very top end of both this selected peer group and the broad UK property sector (we estimate c 5.3% on an unweighted trailing average basis). This is only partly reflected in a narrower discount to NAV.

Exhibit 5: Peer valuation and share price performance comparison

Price (p)

Market cap. (£m)

P/NAV* (x)

Yield** (%)

NAV yield

(%)

Share price performance

1 month

3 months

1 year

3 years

Circle Property

222

63

0.79

3.2

2.5

-9%

-6%

7%

15%

Custodian

92

406

0.75

5.8

4.4

-13%

-10%

-4%

-21%

Derwent London

2,014

2,262

0.50

3.8

1.9

-18%

-28%

-44%

-40%

Picton

79

434

0.65

4.4

2.8

-13%

-14%

-18%

-10%

Great Portland Estates

433

1,100

0.52

2.9

1.5

-16%

-30%

-44%

-42%

Land Securities

514

3,813

0.48

8.9

4.3

-21%

-29%

-28%

-40%

Real Estate Investors

34

60

0.57

9.5

5.4

-3%

-6%

-16%

-37%

Schroder REIT

43

212

0.55

7.1

3.9

-18%

-19%

-13%

-20%

Palace Capital

241

106

0.62

5.8

3.6

-15%

-10%

-2%

-15%

UK Commercial Property REIT

60

778

0.53

8.3

4.4

-16%

-22%

-22%

-28%

Balanced Commercial Property Trust

83

582

0.56

5.4

3.0

-22%

-28%

-16%

-29%

CT Property Trust

75

176

0.56

5.3

3.0

-15%

-13%

1%

-7%

Workspace

428

820

0.43

5.0

2.2

-18%

-34%

-51%

-56%

Average

0.58

5.8

3.3

-15%

-19%

-19%

-25%

Regional REIT

62

319

0.64

10.7

6.8

-13%

-17%

-30%

-40%

UK property sector index

1,267

-19%

-25%

-33%

-27%

UK equity market index

3,841

-6%

-4%

-6%

-6%

Source: Company data, Edison Investment Research, Refinitiv prices as at 26 September 2022. Note: *Based on last reported EPRA NTA or NAV per share. **Based on trailing 12-month DPS declared.

RGL’s significantly higher yield versus the peer average is despite it paying covered dividends. This is not explained by P/NAV multiples as RGL’s trailing yield on NAV is also the highest among the peer group. The market appears to be pricing in dividend unsustainability and, effectively, a material dividend reduction, based a decline in income (as borrowing costs are fixed). Notwithstanding economic uncertainty and likely recession, the impact of which would affect the market more broadly, this appears significantly at odds with RGL’s expectations for the regional office market and for its portfolio, as discussed above.

Exhibit 6: Financial summary

Year end 31 December (£m)

2019

2020

2021

2022e

2023e

INCOME STATEMENT

IFRS

IFRS

IFRS

IFRS

IFRS

Rental & other income

64.4

62.1

65.8

76.8

77.3

Non-recoverable property costs

(9.4)

(8.8)

(9.9)

(14.5)

(13.1)

Net rental & related income

55.0

53.3

55.8

62.3

64.3

Administrative expenses (excluding performance fees)

(10.9)

(11.3)

(10.6)

(11.6)

(12.3)

EBITDA

44.1

42.0

45.2

50.7

52.0

EPRA cost ratio

31.6%

32.4%

31.2%

34.0%

32.8%

Gain on disposal of investment properties

1.7

(1.1)

0.7

(3.3)

0.0

Change in fair value of investment properties

(3.5)

(54.8)

(8.3)

4.8

0.0

Change in fair value of right to use asset

(0.2)

(0.2)

(0.0)

(0.2)

(0.2)

Operating Profit (before amort. and except.)

42.0

(14.1)

37.6

52.0

51.8

Net finance expense

(13.7)

(14.0)

(14.9)

(17.2)

(17.5)

Fair value movement in interest rate derivatives & goodwill impairment

(2.0)

(3.1)

6.0

11.9

0.0

Profit Before Tax

26.3

(31.2)

28.8

46.6

34.2

Tax

0.3

0.2

0.0

0.0

0.0

Profit After Tax (FRS 3)

26.5

(31.0)

28.8

46.6

34.2

Adjusted for the following:

Net gain/(loss) on revaluation/disposal of investment properties

1.9

55.9

7.6

(1.5)

0.0

Other EPRA adjustments

2.6

3.2

(6.0)

(11.6)

0.2

EPRA earnings

31.0

28.1

30.4

33.5

34.5

Period end number of shares (m)

431.5

431.5

515.7

515.7

515.7

Fully diluted average number of shares outstanding (m)

398.9

431.5

459.7

515.7

515.7

IFRS EPS - fully diluted (p)

6.6

(7.2)

6.3

9.0

6.6

EPRA EPS (p)

7.8

6.5

6.6

6.5

6.7

Dividend per share (p)

8.25

6.40

6.50

6.60

6.70

Dividend cover (x)

0.94

1.02

1.02

0.98

1.00

BALANCE SHEET

Non-current assets

806.0

749.5

925.2

948.7

956.5

Investment properties

787.9

732.4

906.1

922.2

930.2

Other non-current assets

18.1

17.2

19.0

26.5

26.3

Current Assets

69.4

101.1

85.5

76.7

70.2

Other current assets

32.2

33.7

29.4

29.7

30.0

Cash and equivalents

37.2

67.4

56.1

47.0

40.2

Current Liabilities

(36.2)

(49.1)

(58.4)

(60.9)

(61.8)

Borrowings

0.0

0.0

0.0

0.0

0.0

Other current liabilities

(36.2)

(49.1)

(58.4)

(60.9)

(61.8)

Non-current liabilities

(355.5)

(380.9)

(449.9)

(449.7)

(450.3)

Borrowings

(287.9)

(310.7)

(383.5)

(387.5)

(388.6)

Other non-current liabilities

(67.6)

(70.3)

(66.4)

(62.2)

(61.7)

Net Assets

483.7

420.6

502.4

514.8

514.6

Derivative interest rate swaps & deferred tax liability

2.6

5.0

(1.0)

(12.9)

(12.9)

Goodwill

(0.6)

0.0

0.0

0.0

0.0

EPRA net tangible assets

485.7

425.6

501.4

501.9

501.7

IFRS NAV per share (p)

112.1

97.5

97.4

99.8

99.8

EPRA NTA per share (p)

112.6

98.6

97.2

97.3

97.3

EPRA NTA total return

4.9%

-5.8%

5.0%

6.9%

6.8%

CASH FLOW

Cash (used in)/generated from operations

26.0

48.0

56.9

52.8

52.5

Net finance expense

(12.2)

(12.5)

(13.1)

(15.4)

(16.1)

Tax paid

(0.8)

0.2

0.0

0.0

0.0

Net cash flow from operations

13.0

35.7

43.8

37.3

36.4

Net investment in investment properties

(25.6)

(0.3)

(98.3)

(14.5)

(8.0)

Acquisition of subsidiaries, net of cash acquired

(43.9)

0.0

0.0

0.0

0.0

Other investing activity

0.2

0.1

0.0

0.0

0.0

Net cash flow from investing activities

(69.4)

(0.2)

(98.2)

(14.5)

(8.0)

Equity dividends paid

(32.5)

(26.7)

(27.8)

(34.0)

(34.4)

Debt drawn/(repaid) - inc bonds and ZDP

3.5

22.2

73.8

3.0

0.0

Net equity issuance

60.5

0.0

(0.1)

0.0

0.0

Other financing activity

(42.7)

(0.8)

(2.7)

(0.9)

(0.8)

Net cash flow from financing activity

(11.2)

(5.3)

43.2

(31.9)

(35.3)

Net Cash Flow

(67.6)

30.1

(11.2)

(9.1)

(6.8)

Opening cash

104.8

37.2

67.4

56.1

47.0

Closing cash

37.2

67.4

56.1

47.0

40.2

Balance sheet debt

(337.1)

(360.1)

(433.1)

(437.2)

(438.5)

Unamortised debt costs

(6.9)

(6.0)

(6.9)

(5.6)

(4.4)

Closing net debt

(306.8)

(298.8)

(383.8)

(395.9)

(402.7)

LTV

38.9%

40.8%

42.4%

42.9%

43.3%

Source: Regional REIT historical data, Edison Investment Research forecasts

General disclaimer and copyright

This report has been commissioned by Regional REIT and prepared and issued by Edison, in consideration of a fee payable by Regional REIT. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2022 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

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60325 Frankfurt

Germany

London +44 (0)20 3077 5700

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United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

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United States of America

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Level 4, Office 1205

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Regional REIT and prepared and issued by Edison, in consideration of a fee payable by Regional REIT. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2022 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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