Creating value through asset management

Regional REIT 11 April 2019 Update
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Regional REIT

Creating value through asset management

FY18 results

Real estate

11 April 2019

Price

106p

Market cap

£399m

Net debt (£m) at 31 December 2018

275.5

Net LTV at 31 December 2018

38.3%

Shares in issue

372.8m

Free float

97%

Code

RGL

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

3.9

14.2

6.0

Rel (local)

(0.1)

7.1

4.5

52-week high/low

106.6p

90.1p

Business description

Regional REIT owns a highly diversified commercial property portfolio of predominantly offices and light industrial units located in the regional centres of the UK. It is actively managed and targets a total shareholder return of at least 10% with a strong focus on income.

Next events

AGM

23 May 2019

Trading update

23 May 2019

Analysts

Martyn King

+44 (0)20 3077 5745

Andrew Mitchell

+44 (0)20 3681 2500

Regional REIT is a research client of Edison Investment Research Limited

Regional REIT (RGL) performed strongly in FY18, generating a 16.6% EPRA NAV total return, including a strong contribution from progressive dividends. Significant transaction activity has refreshed the portfolio for further asset management-driven growth and contributed to reduced gearing, while debt funding has become more flexible and lower cost. We expect reinvestment of disposal proceeds, occupancy and rental growth and lower funding costs to drive growth, with DPS further increased and fully covered by adjusted earnings.

Year end

Net rental
income (£m)

Adjusted
EPS* (p)

EPRA NAV/
share (p)

DPS
(p)

P/EPRA
NAV (x)

Yield
(%)

12/17

45.8

8.6

105.9

7.85

1.01

7.3

12/18

54.4

7.5

115.5

8.05

0.93

7.5

12/19e

55.2

8.5

116.7

8.25

0.92

7.7

12/20e

55.7

8.6

117.8

8.45

0.91

7.9

Note: *Adjusted EPS excludes revaluation movements, gains/losses on disposal, and other non-recurring items, as well as the performance fees (included in EPRA earnings and EPS).

Strong capital and income returns

Substantial capital recycling in FY18 generated significant capital gains while providing an opportunity to refresh the portfolio for future growth. Disposals at prices well ahead of valuation and at yields well below reinvestment levels generated significant capital gains in FY18. They demonstrate RGL’s ability to create value through asset management, with EPRA NAV per share up 9% to 115.5p and DPS increased 2.5% to 8.05p. Earnings growth and dividend cover were temporarily affected by the time lag to reinvestment and additional interest costs related to the issue of retail eligible bonds ahead of repayment of more expensive debt, but we expect the benefits to be seen in FY19.

Outlook and forecasts little changed

RGL says occupational demand in its core regional office and light industrial property markets remains strong and it has yet to see any notable impacts from the continuing Brexit negotiations. Lettings progress has continued into FY19. With end-FY18 LTV reduced to 38.3%, below the target 40%, RGL is well placed to take advantage of market opportunities that may arise. Our forecasts are little changed and we continue to forecast DPS growth broadly in line with inflation, fully covered by adjusted earnings.

Valuation: Strong returns with income focus

RGL shares have performed well, but the prospective yield, approaching 8%, remains among the highest in the sector. Dividend policy is progressive and we expect DPS to be fully covered by adjusted earnings in FY19. The geographic spread of its non-London portfolio, its sector and tenant diversity and high asset yield all mitigate macroeconomic risks.

Strong returns and strategic progress in FY18

RGL performed strongly in FY18, generating an EPRA NAV total return of 16.6% including a significant contribution from dividend income, with DPS further increased during the year. It was an active year for portfolio transactions, with substantial capital recycling generating significant capital gains and providing an opportunity to refresh the portfolio for future growth. However, with sales running ahead of reinvestment during the year, portfolio income growth was dampened. RGL was also active in terms of refinancing borrowing facilities, extending and staggering maturity dates, increasing flexibility and reducing the average cost. In August it successfully issued £50m of retail eligible bonds at 4.5% due in 2024. The proceeds have allowed for repayment of more expensive facilities, lowering future interest costs, but incurring some temporary ‘double financing costs’. The temporary dampening of income and additional debt-related costs had a noticeable impact on the FY18 adjusted earnings growth and dividend cover but will support future returns. We expect FY19 income and earnings to benefit from reinvestment of disposal proceeds, continued occupancy and rental growth and interest savings from the repayment of higher-cost debt. We expect the FY19 DPS to increase and be fully covered by adjusted earnings.

Exhibit 1: Summary of FY18 results

2018

2017

2018/2017

£m unless stated otherwise

IFRS

Adjustments

Adj. earnings

IFRS

Adjustments

Adj. earnings

Adj. earnings

Rental income

74.0

74.0

61.6

61.6

20.1%

Property costs

(19.6)

(19.6)

(15.8)

(15.8)

24.6%

Net rental income

54.4

54.4

45.8

45.8

18.6%

Administrative & other expenses

(10.5)

(10.5)

(7.8)

(7.8)

34.8%

Performance fee

(7.0)

7.0

0.0

(1.6)

1.6

0.0

Operating profit before gains/(losses) on property

36.8

7.0

43.8

36.4

1.6

38.0

15.3%

Gain on disposal of investment property

23.1

(23.1)

0.0

1.2

(1.2)

0.0

Change in fair value of investment property

23.9

(23.9)

0.0

5.9

(5.9)

0.0

Operating profit

83.8

(40.0)

43.8

43.5

(5.5)

38.0

15.3%

Net finance expense

(15.7)

0.4

(15.3)

(14.5)

2.5

(12.0)

27.3%

Impairment of goodwill/change in fair value of derivatives

(0.1)

0.1

(0.0)

(0.3)

0.2

(0.2)

Profit before tax

67.9

(39.4)

28.5

28.7

(2.9)

25.8

10.6%

Tax

(0.6)

0.0

(0.6)

(1.6)

1.4

(0.2)

Net profit

67.4

(39.4)

27.9

27.1

(1.4)

25.6

9.2%

Other data

Basic IFRS EPS (p)

18.1

9.1

Diluted EPRA EPS (p)

5.6

8.1

Diluted adjusted EPS

7.5

8.6

-12.9%

DPS (p)

8.05

7.85

2.5%

Diluted EPRA NAV (p)

115.5

105.9

9.0%

Investment properties

718.4

737.3

-2.6%

Net LTV

38.3%

45.0%

-6.7pp

Source: Regional REIT

The key highlights of the results and more recent activity are:

Net rental income growth of c 19% reflected a full-year contribution from the significant acquisitions made in FY17. Growth would have been higher but for the asset management driven disposals in FY18, exceeding the impact of reinvestment.

Occupancy increased during the year, to 89.4% on an EPRA basis (end-FY17: 88.2%) and by portfolio value to 87.3% (end-FY17: 85.0%). The larger increase by value reflects success in letting refurbishment properties, excluded from the EPRA measure.

Disposals amounted to £149.3m (after costs) during the year, at a weighted average net initial yield (NIY) of c 5.7%, compared with acquisitions amounting to £73.3m (before costs) at an average net initial yield of c 8.7%. The low average yield on disposals partly benefitted from the sale of some non-income generating assets but nevertheless allowed RGL to lock in a strongly positive yield arbitrage and generated realised gains of £23.1m. The disposals and reinvestment are a clear demonstration of management’s ability to generate value through asset management activity and reposition the portfolio for future growth opportunities. As previously reported, since the end of FY18 RGL has acquired Norfolk House in central Birmingham for £20.0m (before costs), with a net initial yield of 7.9%.

Unrealised property revaluation gains were £23.9m, reflecting a like-for-like gain of 4.5%. Capital values for both the office (76.1% of the end-FY18 portfolio value) and industrial assets (15.5%) are well below management’s estimate of replacement value, a positive indicator for future returns.

Although the portfolio value of investment properties reduced slightly y-o-y driven by net sales, the average portfolio was higher in FY18, reflecting the acquisitions completed late in FY17. This was the main driver of administrative expenses (excluding performance fees) and financing costs. FY17 administrative costs also benefitted from non-recurring VAT recoveries. The performance fee reflects strong EPRA NAV total returns; excluding this, the EPRA cost ratio increased slightly to 28.6% from 26.6% in FY17.

Adjusted earnings, which exclude revaluation movements and performance fees, increased c 9% to £28.0m and adjusted EPS was 7.5p (FY17: 8.6p), reflecting the higher average number of shares in issue during the year (following issuance for acquisitions in late FY17). We believe that the terms of the end-FY17 acquisitions were accretive to earnings, such that the FY18 EPS decline can best be seen in terms of the temporary income drag from portfolio repositioning and the short-term additional costs incurred during the year.

Conversely, the benefits of the year’s portfolio activity can be best seen in EPRA NAV per share, which increased c 9% to 115.5p after dividends paid. Including dividends paid, the EPRA NAV total return for the year was 16.6%.

Aggregate quarterly dividends in FY18 increased 2.5% and in the absence of unforeseen circumstances, RGL intends to continue its progressive dividend policy. The Q119 DPS will be declared on 23 May 2019.

FY18 was also an active year in terms of financing, with facilities extended and increased, the issue of a £50m a retail eligible bond issue at 4.5% due in 2024 in August, and the subsequent repayment of more expensive facilities. Since end-FY18, £39.9m has been paid to the holders of the 6.5% zero dividend preference shares (ZDPs) upon maturity in January. Following the ZDP repayment, the group’s cost of borrowing including hedging costs has reduced to c 3.5% with an average remaining term (at 9 January 2019) of 7.1 years. The year-end LTV fell to 38.3%, below the medium-term target of 40%, benefitting from disposals running ahead of reinvestment.

In a positive outlook statement, RGL says it has yet to see any notable change in occupier demand for its assets as a result of the continuing Brexit negotiations and lettings have remained strong into FY19. The company expects its continuing asset management strategy and the continued strength of occupational demand in its core regional office and light industrial property markets will continue to deliver attractive income and capital growth opportunities. With substantial net sales in FY18 and increased flexibility in debt facilities, RGL may be able to benefit from a potentially broader array of opportunities that recently increased Brexit and economic uncertainty may create.

Strategy and portfolio update

Capital recycling is an important element investment strategy

Capital recycling is at the heart of RGL’s strategy. Supported by its fully integrated in-house asset management platform, it seeks to opportunistically acquire attractively priced, income-producing assets that will benefit from active management and may subsequently be sold to realise the value thereby created. During FY18, RGL took advantage of good investment demand to dispose of properties where its asset management plans were complete and, in some cases, where plans were yet to reach maturity but where it had identified that a better risk-adjusted return was available by selling at prevailing market prices, well above valuations. This included the strategic decision to sell 47% of the firm’s industrial portfolio into what it identified as an overheating investment market, particularly in the first half of the year. RGL says it continues to identify attractive asset management opportunities and we would expect capital recycling to continue, although at a slower pace than in FY18. In our forecasting, we assume an unchanged portfolio (other than the early February acquisition of Norfolk House in Birmingham), which implicitly allows for further sales to be matched by acquisitions despite likely short-term timing differences. In FY18, RGL front-loaded disposals, taking advantage of strong investor demand and anticipating the potential for the approach of the Brexit negotiation deadline to introduce some caution into the investment market. In the current year, we would not be surprised to see acquisitions lead disposals, for which existing cash balances and the more flexible borrowing facilities provide headroom. RGL has always been opportunistic in its approach to acquisitions and, should more significant opportunities present themselves in the coming months, we would expect the company to weigh the potential against any possible need for additional capital resources.

Diversification is a key part of portfolio strategy

At end-FY18 the property portfolio was valued at £718.4m (end-FY17: £737.3m), with a contracted rental income of £59.7m (end-FY17: £61.9m). On an EPRA basis (which excludes refurbishment properties) occupancy increased to 89.4% (end-FY17 88.2%). Measured by value, which unlike EPRA includes refurbishment properties, an important part of RGL’s strategy, occupancy increased at a slightly faster pace to 87.3% at end-FY18 (end-FY17: 85.0%). The weighted average lease term (WAULT) to first break was 3.4 years and the valuation at that date reflected a net initial yield of 6.5%, unchanged on end-FY17. The estimated rental value (ERV) of £70m reflects a reversionary yield of 8.8%.

Exhibit 2: Portfolio summary

FY18

FY17

Valuation (£m)

718.4

737.3

Number of properties

150

164

Number of property units

1,192

1,368

Number of tenants

874

1,026

Contracted rents (£m)

59.7

61.9

WAULT to first break (years)

3.4

3.5

Estimated rental value, ERV (£m)

70

73.8

Occupancy (by value)

87.3%

85.0%

Net initial yield

6.5%

6.5%

Reversionary yield

8.8%

9.2%

Source: Regional REIT

RGL’s strategy is focused on regional offices and light industrial property (91.6%), with relatively small exposure to retail and other assets, likely to be disposed of over time. The strategic sale of industrial assets during FY18 saw the industrial weighting of the portfolio reduce to 15.5% (end-FY17: 23.3%), with a corresponding increase in the office weighting to 76.1% (67.3%). The shift appears well timed, with the investment market for industrial assets showing some recent cooling. In the office sector, the regional assets are performing well due to the continued demand for space and the potential for rents to increase from relatively low levels. Reinforcing the strategic direction that RGL has taken since IPO, exposure to better-performing areas of the UK such as the south-east increased further, while exposure to Scotland reduced and is approaching the medium-term target of c 15%.

Exhibit 3: Portfolio split by sector

Exhibit 4: Portfolio split by region

Source: Regional REIT. Note: By value.

Source: Regional REIT. Note: By value.

Exhibit 3: Portfolio split by sector

Source: Regional REIT. Note: By value.

Exhibit 4: Portfolio split by region

Source: Regional REIT. Note: By value.

Maintaining a highly diversified tenant base is a key element of mitigating economic and sector risks to income. RGL pays close attention to the business of its tenants, of which there are nearly 900, and the breadth of its exposures can fairly be said to represent the whole UK economy (Exhibit 5).

Exhibit 5: Standard industrial classification of tenants as % gross income

Source: Regional REIT

Financials

Strong performance, slightly ahead of our estimates

FY18 EPRA earnings and EPS were a little ahead of our estimates, driven by net rental income, while DPS had been previously announced. The LTV, similarly pre-announced with RGL’s portfolio valuation update in February, was lower than our last published estimates. As explained in our recent update, these estimates had assumed re-investment of disposal proceeds in late in FY18, affecting our forecast end-FY18 LTV, but coming too late in the year to contribute to income. The first re-investment came in early February with the £20m acquisition of Norfolk House.

The changes to our FY19 estimates are modest and we continue to forecast DPS growth broadly in line with inflation, fully covered by adjusted earnings. There is a slight reduction in forecast net rental income, resulting from lower assumed net property acquisitions (see below) and forecast EPRA NAV per share is slightly affected by our more cautious approach to revaluation movements, as discussed below. We also introduce a FY20 forecast for the first time, anticipating continued growth in fully covered DPS, with modest growth in EPRA NAV per share.

Exhibit 6: Performance versus estimates and estimate revisions

Net rental income (£m)

Adjusted EPS* (p)

EPRA NAV (p)

DPS (p)

Net LTV

Actual

Est.

% diff.

Actual

Est.

% diff.

Actual

Est.

% diff.

Actual

Est.

% diff.

Actual

Est.

% diff.

12/18a

54.4

53.5

2%

7.5

7.3

3%

115.5

114.8

1%

8.05

8.05

0%

38.3%

39.5%

-1.2pp

New

Old

% chg.

New

Old

% chg.

New

Old

% chg.

New

Old

% chg.

New

Old

Diff.

12/19e

55.2

56.0

-1%

8.5

8.6

-1%

116.7

118.3

-1%

8.25

8.25

0%

40.4%

39.1%

1.3pp

12/20e

55.7

N/A

N/A

8.6

N/A

N/A

117.8

N/A

N/A

8.45

N/A

N/A

40.5%

N/A

N/A

Source: Edison Investment Research

FY19 growth from re-investment, leasing and interest savings

The c 14% growth in adjusted earnings that we forecast for FY19 is driven by reinvestment, occupancy and rental growth and interest savings from the repayment of higher-cost debt. We have assumed aggregate dividends per share will grow by c 2.5% to 8.25p and expect these to be fully covered by adjusted earnings per share of 8.5p. Our main forecasting assumptions are:

We have included the £20m acquisition of Norfolk House, adding an annualised c £1.7m to net rental income, but otherwise assume an unchanged portfolio. Compared with our previous forecast of £40m in acquisitions in late FY18, this represents a c £20m reduction in acquisition-led growth. In reality we would expect RGL to continue to be active, but with disposals and reinvestment more closely balanced than in FY18. Although balanced, this activity has the potential to generate realised gains that are not reflected in forecasts as well as providing further asset management opportunities.

We have assumed a continuing reduction in voids, with portfolio occupancy (by value) increasing to 88.0% by end-FY19 and 89.0% by end-FY20 (end-FY18: 87.3%), and c 0.5% pa rental growth.

We assume gross revaluation gains in line with rental growth (0.5% pa), reduced at the net level in FY19 by acquisition costs for Norfolk House (we assume £300k). Given general market uncertainties, this is a slightly more conservative assumption than previously (revaluation equal to c 1.5% of the opening value), which had also allowed for a positive impact from void reduction. Our estimates imply a broadly unchanged 6.5% NIY and we estimate that a 0.25% increase in market yields would reduce FY19e EPRA NAV per share by 7.1p, while a 0.25% reduction would increase it by 8.0p per share.

Our cash flow analysis allows for payment of the cumulative performance fees of £8.9m from IPO to end-FY18 to be paid in cash during H119. We had previously assumed that 50% of this would be settled by share issuance, but while the share price remains below EPRA NAV this will not be the case.

Including settlement of the performance fee and the acquisition of Norfolk House, we expect LTV to pick up slightly from the end-FY18 level, but to remain at c 40%, in line with RGL’s target.


Valuation

RGL targets a medium-term annual total return of more than 10% and the strong 16.6% EPRA NAV total return in FY18 takes the total return generated since IPO in November 2015 to 37.5%, or a compound average annual return of 10.6%. The strong income focus is clear, with growing dividends per share contributing 59% of the total return over the period.

Exhibit 7: NAV total return

2015*

2016

2017

2018

Since IPO

Opening EPRA NAV per share (p)

100.0

107.8

106.9

105.9

100.0

Closing EPRA NAV per share (p)

107.8

106.9

105.9

115.5

115.5

Dividends per share paid (p)

0.00

6.25

7.80

8.00

22.05

NAV total return (%)

7.8%

5.0%

6.4%

16.6%

37.5%

Compound return (%)

10.6%

Source: Regional REIT. Note: *55-day period from 6 November 2015.

RGL’s high dividend yield continues to be at the very top end of the broad UK property sector. For FY19 we forecast the DPS to be both higher and fully covered by adjusted earnings, representing a prospective yield approaching 8%.

In Exhibit 8 we show a comparison with a narrow group of peers that are similarly focused on regional commercial property. To ease comparison, this data is based on 12-month trailing DPS declared and last published NAV. Compared with this narrower group, RGL’s yield is also well above the average. Its c 8% share price discount to the end-FY18 EPRA NAV per share is lower than the average for the narrower group of peers and is lower than the average for the broad UK property market (we estimate ac 10% discount). Within the group, those companies with an income focus, like RGL, and covered dividends tend to have the higher P/NAV ratings.

Exhibit 8: Peer comparison

Price
(p)

Market cap
(£m)

P/NAV
(x)

Yield
(%)

Share price performance

1 month

3 months

12 months

From 12M high

Circle Property

197

56

0.71

2.8

8%

2%

26%

-23%

Custodian REIT

114

454

1.05

5.7

-1%

-2%

0%

-7%

Mucklow

505

320

0.88

4.6

-1%

2%

-3%

-12%

Picton

92

496

0.99

3.8

4%

6%

5%

-1%

Real Est Inv

55

102

0.79

6.5

11%

4%

-2%

-12%

Schroder REIT

58

300

0.84

4.4

1%

2%

-3%

-14%

Palace Capital

284

130

0.67

6.7

-6%

-9%

-13%

-23%

UK Commercial Property Trust

88

1137

0.94

4.2

1%

-1%

-2%

-4%

F&C Com Prop

119

953

0.85

5.0

-4%

-10%

-15%

-23%

F&C UK Real Est Inv

92

220

0.86

5.5

2%

-7%

-11%

-16%

Average

0.86

4.9

1%

-1%

-2%

-13%

Regional REIT

107

399

0.94

7.5

5%

14%

7%

0%

UK property index

1,725

4.5

0%

7%

-4%

-8%

FTSE All-Share Index

4,065

4.5

4%

8%

3%

-6%

Source: Company data, Edison Investment Research. Note: *Last reported EPRA NAV per share and trailing 12-month DPS declared. Prices as at 8 April 2019.

RGL shares have performed more strongly than the narrow peer group, the broad UK property sector, and the FTSE All-Share Index on a one, three and 12-month basis, which we attribute to its ability to demonstrate strong asset management returns, commitment to a progressive dividend policy and reduced LTV. Given the high prospective yield, the prospect of a return to fully covered dividends in FY19 has the potential to support a further re-rating of the shares.

Exhibit 9: Financial summary

Year end 31 December (£000's)

2015

2016

2017

2018

2019e

2020e

PROFIT & LOSS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

Rental income

5,361

42,994

61,610

74,019

74,034

74,637

Property costs

(754)

(4,866)

(15,763)

(19,644)

(18,822)

(18,976)

Net rental income

 

 

4,608

38,128

45,847

54,375

55,212

55,662

Administrative expenses (excluding performance fees)

(1,353)

(7,968)

(7,819)

(10,540)

(10,309)

(10,385)

Performance fees

0

(249)

(1,610)

(7,046)

(36)

(344)

EBITDA

 

 

3,255

29,911

36,418

36,789

44,867

44,933

EPRA cost ratio

N/A

N/A

29.7%

40.1%

27.7%

28.2%

EPRA cost ratio excluding performance fee

N/A

N/A

26.6%

28.6%

27.7%

27.7%

Gain on disposal of investment properties

87

518

1,234

23,127

0

0

Change in fair value of investment properties

23,784

(6,751)

5,893

23,881

3,356

3,762

Operating profit before financing costs

 

 

27,126

23,678

43,545

83,797

48,224

48,695

Exceptional items

(5,296)

0

0

0

0

0

Net finance expense

(820)

(8,629)

(14,513)

(15,715)

(13,176)

(13,176)

Net movement in the fair value of derivative financial investments and impairment of goodwill

115

(1,654)

(340)

(142)

0

0

Profit Before Tax

 

 

21,124

13,395

28,692

67,940

35,048

35,519

Tax

0

23

(1,632)

(567)

0

0

Profit After Tax (FRS 3)

 

 

21,124

13,418

27,060

67,373

35,048

35,519

Adjusted for the following:

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

(23,870)

6,233

(7,127)

(47,008)

(3,356)

(3,762)

Net movement in the fair value of derivative financial investments

(180)

865

(407)

(459)

0

0

Other EPRA adjustments including deferred tax adjustment

0

557

4,488

987

0

0

EPRA earnings

 

 

(-2,926)

21,073

24,014

20,893

31,691

31,757

Performance fees & exceptional items

5,296

249

1,610

7,046

36

344

Adjusted earnings

 

 

2,371

21,322

25,624

27,939

31,727

32,100

Period end number of shares (m)

274.2

274.2

372.8

372.8

372.8

372.8

Fully diluted average number of shares outstanding (m)

274.2

274.3

297.7

372.8

372.8

372.8

IFRS EPS - fully diluted (p)

 

 

7.7

4.9

9.1

18.1

9.4

9.5

Adjusted EPS, fully diluted (p)

 

 

0.9

7.8

8.6

7.5

8.5

8.6

EPRA EPS, fully diluted (p)

 

 

(1.1)

7.7

8.1

5.6

8.5

8.5

Dividend per share, declared basis (p)

 

 

1.00

7.65

7.85

8.05

8.25

8.45

Dividend cover

N/A

101.6%

109.7%

93.1%

103.2%

101.9%

BALANCE SHEET

Non-current assets

 

 

407,492

506,401

740,928

720,886

752,542

762,305

Investment properties

403,703

502,425

737,330

718,375

750,031

759,794

Other non-current assets

3,790

3,976

3,598

2,511

2,511

2,511

Current Assets

 

 

35,803

27,574

66,587

126,986

59,347

55,098

Other current assets

11,848

11,375

21,947

22,163

22,137

22,482

Cash and equivalents

23,954

16,199

44,640

104,823

37,210

32,616

Current Liabilities

 

 

(21,485)

(23,285)

(42,644)

(83,685)

(42,286)

(43,057)

Bank and loan borrowings - current

(200)

0

(400)

(40,216)

0

0

Other current liabilities

(21,285)

(23,285)

(42,244)

(43,469)

(42,286)

(43,057)

Non-current liabilities

 

 

(126,469)

(218,955)

(371,972)

(334,672)

(335,612)

(336,152)

Bank and loan borrowings - non-current

(126,469)

(217,442)

(371,220)

(334,335)

(335,275)

(335,815)

Other non-current liabilities

0

(1,513)

(752)

(337)

(337)

(337)

Net Assets

 

 

295,341

291,735

392,899

429,515

433,991

438,193

Derivative interest rate swaps & deferred tax liability

416

1,513

2,802

971

971

971

EPRA net assets

 

 

295,757

293,248

395,701

430,486

434,962

439,164

IFRS NAV per share (p)

107.7

106.4

105.4

115.2

116.4

117.5

Fully diluted EPRA NAV per share (p)

107.8

106.9

105.9

115.5

116.7

117.8

CASH FLOW

Cash (used in)/generated from operations

 

 

(2,232)

31,434

40,251

38,817

43,711

45,358

Net finance expense

(424)

(6,626)

(9,167)

(11,923)

(11,636)

(11,636)

Tax paid

0

(1,715)

(236)

(1,467)

0

0

Net cash flow from operations

 

 

(2,656)

23,093

30,848

25,427

32,074

33,722

Net investment in investment properties

1,157

(99,286)

(8,267)

100,601

(28,300)

(6,000)

Acquisition of subsidiaries, net of cash acquired

26,659

(5,573)

(51,866)

(32,629)

0

0

Other investing activity

13

60

25

220

0

0

Net cash flow from investing activities

 

 

27,828

(104,799)

(60,108)

68,192

(28,300)

(6,000)

Equity dividends paid

0

(15,723)

(23,321)

(29,429)

(30,571)

(31,317)

Debt drawn/(repaid) - inc bonds and ZDP

(1,217)

91,417

13,921

(547)

(39,816)

0

Other financing activity

0

(1,744)

67,101

(3,460)

(1,000)

(1,000)

Net cash flow from financing activity

 

 

(1,217)

73,950

57,701

(33,436)

(71,387)

(32,317)

Net Cash Flow

 

 

23,955

(7,756)

28,441

60,183

(67,613)

(4,595)

Opening cash

0

23,955

16,199

44,640

104,823

37,210

Closing cash

 

 

23,955

16,199

44,640

104,823

37,210

32,616

Balance sheet debt

(126,669)

(217,442)

(371,620)

(374,551)

(335,275)

(335,815)

Unamortised debt costs

(1,875)

(2,618)

(4,843)

(5,752)

(5,212)

(4,672)

Closing net debt

 

 

(104,588)

(203,861)

(331,823)

(275,480)

(303,277)

(307,871)

LTV

25.9%

40.6%

45.0%

38.3%

40.4%

40.5%

Source: Regional REIT, Edison Investment Research

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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 Edison analyst 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.

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United Kingdom

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Frankfurt +49 (0)69 78 8076 960

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United States of America

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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 £49,500 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 Edison analyst 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 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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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

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

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 (nor will such persons be able to purchase shares in the placing).

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

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. 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

1,185 Avenue of the Americas

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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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