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Well positioned for an office recovery

Regional REIT 4 April 2022 Update
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Regional REIT

Well positioned for an office recovery

FY21 results

Real estate

4 April 2022

Price

87.8p

Market cap

£453m

Net debt (£m) as 31 December 2021

383.8

Net LTV as at 31 December 2021

42.4%

Shares in issue

515.7m

Free float

99%

Code

RGL

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

0.9

(6.5)

13.7

Rel (local)

(2.0)

(6.3)

4.3

52-week high/low

94.5p

77.2p

Business description

Regional REIT is focused on office assets (more than 90%), 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 and targets a total shareholder return of at least 10% with a strong focus on income.

Next events

Q122 DPS announcement

25 May 2022

Analyst

Martyn King

+44 (0)20 3077 5745

Regional REIT is a research client of Edison Investment Research Limited

In a challenging environment Regional REIT (RGL) performed well in FY21, increasing earnings and dividends, and continuing income-led positive returns. It also made strong strategic progress, achieving its focus on regional offices, for which it expects a strengthening recovery, while building additional scale and diversification.

Year end

Net rental
income (£m)

EPRA
earnings* (£m)

EPRA
EPS* (p)

NAV/ share** (p)

DPS
(p)

P/NTA
(x)

Yield
(%)

12/20

53.3

28.1

6.5

98.6

6.40

0.89

7.3

12/21

55.8

30.4

6.6

97.2

6.50

0.90

7.4

12/22e

63.1

34.6

6.7

99.0

6.70

0.89

7.6

12/23e

65.4

36.7

7.1

101.0

7.10

0.87

8.1

Note: *EPRA earnings exclude revaluation movements, gains/losses on disposal and other non-recurring items. EPRA EPS is fully diluted. **NAV used is EPRA net tangible assets (NTA) per share. EPS and NTA are fully diluted.

Fully covered dividend growth

The August 2021 £236m acquisition of a significant regional office portfolio, funded a mix of new shares and debt, had only a partial impact on FY21. EPRA earnings increased 8% y-o-y to £30.4m and including new shares issued EPRA EPS increased 1.5% to 6.6p, fully covering DPS of 6.5p (+1.6%). Property acquisition costs offset a 1.1% like-for-like portfolio valuation gain and EPRA NTA per share reduced slightly to 97.2p, but including DPS paid the total return was 5.0%. The acquisition funding increased net LTV to 42.4%, but RGL expects to bring this back towards its 40% target over the next 12–18 months through a combination of valuation growth and non-core disposals. We have made only modest changes to our forecasts, which anticipate further earnings and DPS growth driven by the full impact of the FY21 portfolio growth and relatively modest reversionary income capture.

RGL anticipates positive office sector performance

RGL believes the office is an essential aspect of the working infrastructure and the sector is poised for recovery, particularly for good-quality regional assets with affordable rents. This is now the focus of investment following significant transaction activity during FY21, rotating the portfolio further towards offices (now c 90% by value). Reflecting strong asset management potential, the portfolio acquisition contributed to a reduction in EPRA occupancy at end-FY21 (81.8% vs 85.7% at H1), as did a well-flagged large lease expiry towards the year-end. During FY21 the gross rent roll increased substantially with portfolio growth to £72.1m (FY20: £64.2m), with strong upside potential towards an ERV of £94.6m, primarily through the letting of vacant office space, well ahead of our near-term assumptions.

Valuation: High yield and fully covered, growing DPS

RGL continues to offer one of the highest yields in the UK REIT sector. Its FY21 yield of 7.4% is significantly above close peers. We forecast further growth in fully covered DPS in FY22 and FY23. This is partly reflected in a narrower c 10% discount to NAV versus peers (average c 18%).

Well positioned for an office recovery

Robust FY21 performance with strategic office focus achieved

RGL performed well in FY21 despite a challenging backdrop for the office sector caused by the pandemic. Rent collection remained strong throughout the year and currently stands at 99.2%,1 underpinning income performance and uninterrupted quarterly dividends. The year saw substantial property transaction activity,2 reflecting RGL’s view that its industrial assets offered little remaining income upside compared with the opportunities that it could identify in the office sector. Regional offices offer relatively high yields, a combination of low rents and low capital values. The latter are well below new build costs and this has inhibited most new development in recent years. Meanwhile, re-purposing of existing space towards residential, student and hotel accommodation has worked to reduce supply. Structural demand factors remain in place, such as office migration from (more expensive) London to the regions and the political goal of rebalancing economic activity from South England to the North likely to remain, possibly reinforced by a shift to ‘localism’ (smaller, regional offices located in towns and cities outside the capital).

  As at 18 March 2022, comprising 97.9% cash collected, 0.2% monthly collected, and agreed payment plans of 1.1%.

  Acquisitions £236m (before acquisition costs) and disposals of £79.6m.

The £236m acquisition of the Squarestone portfolio of primarily regional office assets and the sale of most of the remaining industrial assets achieved this aim and has added considerable scale, with an attractive initial yield and significant income growth potential. Regional office assets now represent c 90% of the portfolio and non-core assets, including the rump of the industrial assets, c 9%.

With the return to the office underway, RGL is optimistic about a recovery in letting activity that would enable it to capture some of the significant reversionary income in the portfolio and drive capital values higher.

Exhibit 1: Substantial portfolio activity in FY21

Exhibit 2: Focus on the office sector

Source: Regional REIT data, Edison Investment Research

Source: Regional REIT. Note: 31 December 2021.

Exhibit 1: Substantial portfolio activity in FY21

Source: Regional REIT data, Edison Investment Research

Exhibit 2: Focus on the office sector

Source: Regional REIT. Note: 31 December 2021.

Although now focused on the office sector, RGL’s rental stream remains highly diversified across a broad range of properties, tenants and industries, mitigating income risk in a still uncertain environment. All RGL’s debt is fixed or hedged, while over time commercial property sector rents have broadly tracked inflation

The Squarestone portfolio adds high-quality and complementary assets

The Squarestone portfolio acquisition was covered in detail in our October update note. RGL was primarily attracted by the quality of the assets acquired, their complementarity with the existing portfolio, and the significant asset management opportunity they provide.

The portfolio assets comprise 27 geographically well-spread regional offices (93.3% by value), two industrial units, a residential asset and a drive-thru restaurant. The initial income is attractive with the £21.9m contracted rent roll reflected in a net initial yield of 7.8%, and with EPRA occupancy of 78.8% at acquisition and reversionary yield of 11.0% there is significant opportunity to increase income over time.

Offices are re-opening and RGL remains positive

With pandemic restrictions lifted, the return to the office is underway. A legacy of the pandemic will likely be a permanent acceleration in some of the trends that were already in place. Most tenants are expected to adopt a hybrid model of working, at least initially, 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. As an alternative, hot desking is typically unpopular with staff, who value their own space, the certainty of being in proximity to close colleagues. Hot desking may stifle the collaboration and creativity required by many employers. RGL expects any reduction in the demand for space driven by changes in working practices to be offset by a reduction in office density (the number of employees per square metre), accelerating a trend that was in place prior to the pandemic. This is likely to apply particularly to good-quality space at affordable rents. The trend has been driven by a recognition that to retain and attract staff, in many industries it is necessary for employers to offer better facilities (including relaxation areas and space for collaborative working and informal discussion) and quality accommodation. The experience of social distancing, driven by the pandemic, is only likely to reinforce this trend.

Strong reversionary potential

Leasing activity was challenging through FY21 but RGL is expecting a recovery that will enable it to benefit from strong reversionary income potential in its office portfolio.

Coming into FY21, 12-month lease expiries to first break were £16.2m or 26% of the rent roll. During the year, new lettings added £2.5m to contracted rents and c 59% of expiring income was retained, although on a like-for-like basis EPRA occupancy reduced from 89.5% at end-FY20 to 82.4% at end-FY21. The decline was magnified by some identified significant maturities towards year-end where it had previously been identified that the tenants would vacate to new premises. Coming into FY22, 12-month lease maturities to first break were £14.1m or c 20% of rent roll. An improvement in retention, back towards a more normal 70%, and/or an increase in new letting activity would see occupancy rebuild.

The externally estimated rental value (ERV) of the RGL’s office portfolio was £86.3m at end-FY21, £22.4m or 35% above contracted rents3 (EPRA occupancy 80.8%). The majority of this reversionary income potential (c £17m) relates to occupancy improvement and the balance relates to the gap between existing rents and ERV as well as lease incentive run-off.

  For the portfolio as a whole, ERV of £94.6m was similarly £22.5m ahead of £72.1m of contracted rent.

Active management continues to drive 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 although DPS was reduced in FY20 as a result of the pandemic, quarterly dividends were maintained and have again begun to increase. Aggregate FY21 DPS of 6.5p was up 1.6% on FY20 (6.4p) and we forecast further growth in DPS in FY22 and FY23, fully covered by EPRA earnings.

Exhibit 3: Consistent dividends tracking EPRA earnings

Source: Regional REIT data

With the exception of FY20 again, the accounting total return has been positive in each year since the initial public offering, amounting to 41.2% or a compound average annual return of 5.8%, all generated by dividends paid.

Exhibit 4: NAV total return performance*

2015*

2016

2017

2018

2019

2020

2021

Since IPO

Opening EPRA NAV per share (p)

100.0

106.8

106.1

105.4

115.2

112.6

98.6

100.0

Closing EPRA NTA* per share (p)

106.8

106.1

105.4

115.2

112.6

98.6

97.2

97.2

Dividends per share paid (p)

0.00

6.25

7.80

8.00

8.20

7.45

6.30

44.00

NAV total return (%)

6.8%

5.1%

6.7%

16.8%

4.9%

-5.8%

5.0%

41.2%

Average annual return (%)

5.8%

Source: Regional REIT data, Edison Investment Research. Note: *EPRA net tangible assets (NTA) per share

All RGL’s debt is fixed or hedged

RGL’s secured debt portfolio is diversified across a range of lenders and is well spread by maturity with a weighted average of 5.5 years. RGL also has £50m of unsecured retail eligible bonds due to expire in August 2024. During FY21 RGL increased its borrowings to part fund the Squarestone portfolio acquisition, the majority of which was funded by a new club facility provided by the Royal Bank of Scotland, Bank of Scotland and Barclays.

It is RGL’s target to hedge at least 90% of the total debt portfolio using interest derivatives or fixed rate facilities and this currently applies to all debt, eliminating most interest rate risk, with a weighted average effective interest rate, including hedging costs, of 3.3% at end-FY21.

Exhibit 5: Debt portfolio summary

Original facility (£m)

Outstanding
(£m)

Maturity

Gross loan to value

Interest terms

Royal Bank of Scotland, Bank of Scotland, & Barclays

128.0

127.2

Aug-26

43.4%

SONIA + 2.40%

Scottish Widows & Aviva

165.0

165.0

Dec-27

46.4%

3.28% fixed

Scottish Widows

36.0

36.0

Dec-28

38.7%

3.37% fixed

Santander

65.9

61.7

Jun-29

39.0%

Libor + 2.20%

Total secured facilities

394.9

389.9

Retail Eligible Bond

50.0

50.0

Aug-24

Unsecured

4.5% fixed

Total facilities

444.9

439.9

Source: Regional REIT

FY21 results in detail and forecast update

Exhibit 6 provides a summary of the FY21 financial performance.

Exhibit 6: Summary of FY21 financial performance

£m unless stated otherwise

FY21

FY20

FY21/FY20

Edison FY21 forecast

Net rental income

65.8

62.1

5.9%

66.0

Non-recoverable property costs

(9.9)

(8.8)

12.9%

(9.7)

Net rental income

55.8

53.3

4.8%

56.3

Administrative & other expenses

(10.6)

(11.3)

-6.6%

(11.3)

Operating profit before gains/(losses) on property

45.2

42.0

7.8%

45.0

Unrealised and realised property gains/(losses)

(7.7)

(56.1)

(10.7)

Operating profit

37.6

(14.1)

34.3

Net finance expense

(14.9)

(14.0)

6.6%

(14.5)

Impairment of goodwill

0.0

(0.6)

0.0

Change in fair value of interest rate derivative

6.0

(2.5)

2.6

Profit before tax

28.8

(31.2)

22.4

Tax

0.0

0.2

0.0

IFRS Net profit

28.8

(31.0)

22.4

Adjust for:

Unrealised and realised property gains/(losses)

7.7

56.1

10.7

Impairment of goodwill

0.0

0.6

0.0

Change in fair value of interest rate derivative

(6.0)

2.5

(2.6)

EPRA earnings

30.4

28.1

8.0%

30.5

Basic IFRS EPS (p)

6.3

(7.2)

4.9

EPRA EPS (p)

6.6

6.5

1.5%

6.6

DPS (p)

6.50

6.40

1.6%

6.50

EPRA NTA per share (p)

97.2

98.6

-1.4%

96.9

Accounting total return

5.0%

-5.8%

4.7%

Investment properties

906.1

732.4

23.7%

910.4

Net debt

(383.8)

(298.8)

(390.0)

Net LTV

42.4%

40.8%

42.8%

Source: Regional REIT, Edison Investment Research

Key features of the FY21 results included:

Rental and other property income increased by £3.7m or 5.9% to £65.8m, primarily driven by the increase in rent roll in place during the year, increased by significant net acquisition activity during the second half of the year.

Including non-recoverable property costs, increased by portfolio growth and an increase in voids, net rental income increased £2.5m or 4.8% to £55.8m.

Administrative expenses were also lower year-on-year, primarily the result of lower investment and asset management fees, which reduced in line with average net asset value.

Operating profit before property valuation movements increased £3.2m or 7.8% with the EPRA cost ratio reducing to 31.2% (FY20: 32.4%).

With interest expense up 6.6% or £0.9m, driven by higher average borrowings on the enlarged portfolio, EPRA earnings increased £2.4m or 8% to £30.4m or EPRA EPS of 6.6p, fully covering DPS of 6.5p.

IFRS earnings and net asset value (NAV) also included a net realised and unrealised property loss of £7.7m, with like-for-like valuation growth of 1.1% offset by £15.4m of property acquisition costs, primarily related to the Squarestone portfolio acquisition, and a £6.0m gain in the fair value of interest rate derivatives used to hedge interest rate risk.

The net loan to value ratio (LTV) increased as expected, following the Squarestone acquisition, to 42.4%. RGL expects this to return towards its medium-term target of c 40% through a combination of valuation growth and further non-core asset sales. We are more cautious on valuation growth and our forecasts show a broadly flat LTV.

Forecasts

As Exhibit 7 shows, the FY21 results were very much as we had expected. There is a slight reduction to our FY22 and FY23 EPRA earnings forecasts, but EPRA NTA is increased slightly and DPS is unchanged, fully covered by EPRA earnings.

Exhibit 7: Forecast revisions

Net rental income (£m)

EPRA earnings (£m)

EPRA EPS (p)

EPRA NTA (p)

DPS (p)

New

Old

% chg.

New

Old

% chg.

New

Old

% chg.

New

Old

% chg.

New

Old

% chg.

12/22e

63.1

64.0

(1.5)

34.6

35.1

(1.3)

6.7

6.8

(1.3)

99.0

98.0

1.1

6.70

6.70

0.0

12/22e

65.4

65.9

(0.7)

36.7

36.9

(0.5)

7.1

7.2

(0.5)

101.0

100.0

1.0

7.10

7.10

0.0

Source: Edison Investment Research

Our forecasts assume no net impact from acquisitions and disposals over the year, although both are likely.4 The driver of our forecasts is thus net rental income. Annualised contracted gross rental income increased 8% in FY21 to £72.1m from £64.2m, driven by net acquisitions and partly offset by lower occupancy. We expect a modest increase in contracted rent to £73.5m in FY22 and £75.6m in FY23, driven by an uptick in occupancy (to c 83% versus 81.8% at end-FY21) as the letting market begins to recover. Our forecasts show an increase in non-recoverable property expenses, but the full period impact of the increased portfolio masks a slight underlying reduction in line with the occupancy improvement.

  Since the end of FY21 eight non-core properties have been disposed of for an aggregate consideration of £33.5m, at a 1.3% premium to the FY21 valuation, with a net initial yield of 5.1% (or 6.3% excluding vacant properties).

We have assumed modest growth in property valuations of c 1% pa, driven mainly by occupancy improvement. RGL is hopeful of stronger growth including an improvement in external valuer sentiment as improving investment volumes provide more transactional evidence of underlying market valuations. We estimate that a 1% increase/decrease in the FY21e value of investment properties increases/decreases EPRA NTA by c 1.9%.

Valuation

In Exhibit 8 we show a comparison with a narrow group of peers that are similarly focused on regional commercial property. To ease comparison, the data is based on 12-month trailing DPS declared and last published EPTA NTA/NAV.

RGL’s high trailing FY21 dividend yield of 7.4% continues to be at the very top end of both this narrow peer group and the broad UK property sector (we estimate c 4.5% on a trailing basis), particularly in respect of covered dividends. This is reflected in a narrower discount to NAV of c 10% versus the peer group average of c 18%.

Exhibit 8: Peer valuation and share price performance comparison

Price
(p)

Market cap (£m)

P/NAV* (x)

Yield**
(%)

Share price performance (%)

1 month

3 months

12 months

From 12m high

Circle Property

234

67

0.85

1.5

4%

10%

17%

-4%

Custodian

102

451

0.90

5.0

1%

-3%

11%

-6%

Picton

98

538

0.87

3.4

3%

-4%

13%

-8%

Real Estate Investors

40

72

0.68

7.7

5%

1%

19%

-7%

Schroder REIT

58

285

0.82

4.9

7%

8%

45%

-1%

Palace Capital

268

124

0.74

4.7

9%

2%

16%

-8%

UK Commercial Property REIT

91

1179

0.89

3.0

19%

21%

24%

0%

BMO Commercial Property Trust

117

857

0.86

3.6

8%

11%

64%

-2%

BMO Real Estate Investments

94

226

0.78

4.1

12%

10%

27%

-2%

Average

0.82

4.5

8%

6%

27%

-4%

Regional REIT

88

453

0.90

7.4

4%

-6%

14%

-9%

UK property sector index

234

67

0.85

1.5

4%

10%

17%

-4%

UK equity market index

102

451

0.90

5.0

1%

-3%

11%

-6%

Source: Company data, Edison Investment Research, Refinitiv prices as at 31 March 2022. Note: *Based on last reported EPRA NTA or NAV per share. **Based on trailing 12-month DPS declared.

Exhibit 9: Financial summary

Year end 31 December (£m)

2018

2019

2020

2021

2022e

2023e

INCOME STATEMENT

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

Rental & other income

62.1

64.4

62.1

65.8

74.6

76.6

Non-recoverable property costs

(7.7)

(9.4)

(8.8)

(9.9)

(11.6)

(11.2)

Net rental & related income

54.4

55.0

53.3

55.8

63.1

65.4

Administrative expenses (excluding performance fees)

(10.5)

(10.9)

(11.3)

(10.6)

(11.9)

(12.2)

Performance fees

(7.0)

0.0

0.0

0.0

0.0

0.0

EBITDA

36.8

44.1

42.0

45.2

51.2

53.2

EPRA cost ratio

40.1%

31.6%

32.4%

31.2%

31.5%

30.5%

EPRA cost ratio excluding performance fee

28.6%

31.6%

32.4%

31.2%

31.5%

30.5%

Gain on disposal of investment properties

23.1

1.7

(1.1)

0.7

0.0

0.0

Change in fair value of investment properties

23.9

(3.5)

(54.8)

(8.3)

9.1

9.3

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.)

83.8

42.0

(14.1)

37.6

60.1

62.3

Net finance expense

(15.7)

(13.7)

(14.0)

(14.9)

(16.5)

(16.5)

Fair value movement in interest rate derivatives & goodwill impairment

(0.1)

(2.0)

(3.1)

6.0

0.0

0.0

Profit Before Tax

67.9

26.3

(31.2)

28.8

43.5

45.8

Tax

(0.6)

0.3

0.2

0.0

0.0

0.0

Profit After Tax (FRS 3)

67.4

26.5

(31.0)

28.8

43.5

45.8

Adjusted for the following:

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

(47.0)

1.9

55.9

7.6

(9.1)

(9.3)

Other EPRA adjustments

0.5

2.6

3.2

(6.0)

0.2

0.2

EPRA earnings

20.9

31.0

28.1

30.4

34.6

36.7

Performance fees

7.0

0.0

0.0

0.0

0.0

0.0

Adjusted earnings

27.9

31.0

28.1

30.4

34.6

36.7

Period end number of shares (m)

372.8

431.5

431.5

515.7

515.7

515.7

Fully diluted average number of shares outstanding (m)

372.8

398.9

431.5

459.7

515.7

515.7

IFRS EPS - fully diluted (p)

18.1

6.6

(7.2)

6.3

8.4

8.9

EPRA EPS, fully diluted (p)

5.6

7.8

6.5

6.6

6.7

7.1

Adjusted EPS (p)

7.5

7.8

6.5

6.6

6.7

7.1

Dividend per share (p)

8.05

8.25

6.40

6.50

6.70

7.10

Dividend cover

93.1%

94.2%

101.7%

101.7%

100.2%

100.2%

BALANCE SHEET

Non-current assets

720.9

806.0

749.5

925.2

946.1

967.2

Investment properties

718.4

787.9

732.4

906.1

927.3

948.6

Other non-current assets

2.5

18.1

17.2

19.0

18.8

18.6

Current Assets

127.0

69.4

101.1

85.5

78.4

69.2

Other current assets

22.2

32.2

33.7

29.4

28.4

29.2

Cash and equivalents

104.8

37.2

67.4

56.1

50.0

40.0

Current Liabilities

(83.7)

(36.2)

(49.1)

(58.4)

(62.5)

(63.7)

Borrowings

(0.4)

0.0

0.0

0.0

0.0

0.0

Other current liabilities

(83.3)

(36.2)

(49.1)

(58.4)

(62.5)

(63.7)

Non-current liabilities

(334.7)

(355.5)

(380.9)

(449.9)

(450.4)

(450.9)

Borrowings

(285.2)

(287.9)

(310.7)

(383.5)

(384.5)

(385.5)

Other non-current liabilities

(49.5)

(67.6)

(70.3)

(66.4)

(65.9)

(65.4)

Net Assets

429.5

483.7

420.6

502.4

511.6

521.7

Derivative interest rate swaps & deferred tax liability

1.0

2.6

5.0

-1.0

-1.0

-1.0

Goodwill

(1.1)

(0.6)

0.0

0.0

0.0

0.0

EPRA net tangible assets

429.4

485.7

425.6

501.4

510.6

520.7

IFRS NAV per share (p)

115.2

112.1

97.5

97.4

99.2

101.2

Fully diluted EPRA NTA per share (p)

115.2

112.6

98.6

97.2

99.0

101.0

CASH FLOW

Cash (used in)/generated from operations

38.8

26.0

48.0

56.9

56.2

53.7

Net finance expense

(11.9)

(12.2)

(12.5)

(13.1)

(15.2)

(15.2)

Tax paid

(1.5)

(0.8)

0.2

0.0

0.0

0.0

Net cash flow from operations

25.4

13.0

35.7

43.8

41.0

38.6

Net investment in investment properties

100.6

(25.6)

(0.3)

(98.3)

(12.0)

(12.0)

Acquisition of subsidiaries, net of cash acquired

(32.6)

(43.9)

0.0

0.0

0.0

0.0

Other investing activity

0.2

0.2

0.1

0.0

0.0

0.0

Net cash flow from investing activities

68.2

(69.4)

(0.2)

(98.2)

(12.0)

(12.0)

Equity dividends paid

(29.4)

(32.5)

(26.7)

(27.8)

(34.3)

(35.7)

Debt drawn/(repaid) - inc bonds and ZDP

(50.5)

3.5

22.2

73.8

0.0

0.0

Net equity issuance

(1.2)

60.5

0.0

(0.1)

0.0

0.0

Other financing activity

47.7

(42.7)

(0.8)

(2.7)

(0.9)

(0.9)

Net cash flow from financing activity

(33.4)

(11.2)

(5.3)

43.2

(35.2)

(36.6)

Net Cash Flow

60.2

(67.6)

30.1

(11.2)

(6.1)

(10.0)

Opening cash

44.6

104.8

37.2

67.4

56.1

50.0

Closing cash

104.8

37.2

67.4

56.1

50.0

40.0

Balance sheet debt

(374.6)

(337.1)

(360.1)

(433.1)

(434.3)

(435.4)

Unamortised debt costs

(5.8)

(6.9)

(6.0)

(6.9)

(5.7)

(4.5)

Closing net debt

(275.5)

(306.8)

(298.8)

(383.8)

(390.0)

(400.0)

LTV

38.3%

38.9%

40.8%

42.4%

42.1%

42.2%

Source: Regional REIT, Edison Investment Research

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

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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

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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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