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Currency in GBP
Last close As at 09/06/2023
GBP0.51
▲ 0.20 (0.39%)
Market capitalisation
GBP263m
Research: Real Estate
Regional REIT (RGL) has announced the acquisition of three high-quality, recently refurbished office assets, with good environmental credentials, for an aggregate £26.5m, reflecting an accretive net initial yield of 8.0%. Across its portfolio, as the ‘return to the office’ builds, RGL expects a positive demand-supply balance for attractive regional offices to generate further value creation, despite economic and political challenges. This is based on the expectation of rental growth and increased occupancy driving valuation gains. Recent market weakness leaves the shares on a highly attractive FY21 yield of 8.6% and 23% discount to NAV.
Regional REIT |
Acquisitions are accretive and portfolio enhancing |
Property acquisitions |
Real estate |
23 June 2022 |
Share price performance
Business description
Analyst
Regional REIT is a research client of Edison Investment Research Limited |
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Regional REIT (RGL) has announced the acquisition of three high-quality, recently refurbished office assets, with good environmental credentials, for an aggregate £26.5m, reflecting an accretive net initial yield of 8.0%. Across its portfolio, as the ‘return to the office’ builds, RGL expects a positive demand-supply balance for attractive regional offices to generate further value creation, despite economic and political challenges. This is based on the expectation of rental growth and increased occupancy driving valuation gains. Recent market weakness leaves the shares on a highly attractive FY21 yield of 8.6% and 23% discount to NAV.
Year end |
Net rental |
EPRA |
EPRA |
NAV**/ |
DPS |
P/NAV |
Yield |
12/20 |
53.3 |
28.1 |
6.5 |
98.6 |
6.40 |
0.76 |
8.5 |
12/21 |
55.8 |
30.4 |
6.6 |
97.2 |
6.50 |
0.77 |
8.6 |
12/22e |
62.8 |
34.1 |
6.6 |
98.9 |
6.60 |
0.76 |
8.8 |
12/23e |
64.9 |
35.8 |
6.9 |
101.8 |
6.90 |
0.74 |
9.2 |
Note: *EPRA earnings exclude revaluation movements, gains/losses on disposal and other non-recurring items. EPRA EPS is fully diluted. **NAV is EPRA net tangible assets per share.
The acquired assets enhance overall portfolio quality, including its environmental credentials, and are accretive to earnings. Including previously announced transactions, RGL has acquired c £75m of assets year to date at a blended c 8.4% net initial yield and has sold c £69m of assets at a blended net initial yield of 5.9%.
The acquisitions announced today are consistent with the desire of many occupiers to enhance the attractiveness of the working environments they provide, particularly post-pandemic and, alongside landlords, to improve their environmental footprints. In addition, RGL notes that they are located in a growth region of the UK (one in Sheffield and two in Leeds), supported by strong tenants and, despite a high level of occupancy and attractive immediate income stream, offer good opportunities to create additional value through asset management.
At end-FY21, RGL’s c £900m portfolio reflected a net initial yield of 5.6% and reversionary yield of 9.4% and contained more than £20m of reversion potential, primarily through void reduction. The relatively high asset yield is a key element of RGL’s income generation and dividend strategy, and the company notes that the yield does not reflect low-quality assets. Rather, RGL targets high-quality assets, fit for companies of all sizes in a cost-effective manner. It targets an EPC rating of B or better for all properties by 2030 and, while c 10% of end-FY21 assets were in this category, RGL expects that most of the investment required will form part of the existing rolling programme of capital expenditure, including investment by tenants that also seek to enhance their environmental performance.
We forecast an increase in FY22 DPS to 6.6p, fully covered by EPRA earnings, compared with 6.5p in FY21. With all debt fixed or hedged with swaps/caps, RGL has virtually no direct exposure to rising interest rates. The trailing yield of 8.6% remains one of the highest in the sector and, combined with the c 23% discount to NAV, there is significant revaluation potential from an improving office market.
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Research: Healthcare
Cantargia has announced that it has resolved to carry out a rights issue of approximately SEK250m. The proceeds of the raise will be used to fund the clinical development of Cantargia’s lead asset, the IL1RAP-targeting antibody, nadunolimab (CAN04), as well as progress its second antibody programme, CAN10. Encouraging clinical data was presented at ASCO and also at the company’s recent R&D day, which highlighted positive results from the CANFOUR programme in non-small cell lung cancer (NSCLC, Phase IIa) and first-line pancreatic ductal adenocarcinoma (PDAC, Phase I/IIa). Resolution of the rights issue is subject to approval by shareholders at an extraordinary general meeting to be held on 21 July. At the time of writing, Cantargia’s shares had decreased by c 30% on the news due to potential future dilution for existing shareholders.
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