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Research: Real Estate
Regional REIT (RGL) delivered a good income performance in FY22, led by strong leasing (well above pre-pandemic levels) and continued strong rent collection. DPS of 6.6p was fully covered and we forecast the same for FY23. Market-wide valuation yield widening reduced NAV and increased gearing, but RGL notes that it has ample headroom available across its debt facilities, which are fixed at a cost of 3.5%. In this note we explain why we think DPS is sustainable and review some of the key issues that appear to be weighing on the valuation.
Regional REIT |
Covered dividend with a 12% yield |
FY22 results |
Real estate |
17 April 2023 |
Share price performance
Business description
Next events
Analyst
Regional REIT is a research client of Edison Investment Research Limited |
Regional REIT (RGL) delivered a good income performance in FY22, led by strong leasing (well above pre-pandemic levels) and continued strong rent collection. DPS of 6.6p was fully covered and we forecast the same for FY23. Market-wide valuation yield widening reduced NAV and increased gearing, but RGL notes that it has ample headroom available across its debt facilities, which are fixed at a cost of 3.5%. In this note we explain why we think DPS is sustainable and review some of the key issues that appear to be weighing on the valuation.
Year end |
Net rental |
EPRA |
EPRA |
NAV**/ |
DPS |
P/NAV |
Yield |
12/21 |
55.8 |
30.4 |
6.6 |
97.2 |
6.50 |
0.57 |
11.8 |
12/22 |
62.6 |
34.1 |
6.6 |
73.5 |
6.60 |
0.75 |
12.0 |
12/23e |
62.8 |
33.9 |
6.6 |
73.5 |
6.60 |
0.75 |
12.0 |
12/24e |
64.7 |
34.4 |
6.7 |
73.5 |
6.60 |
0.75 |
12.0 |
Note: *EPRA earnings exclude revaluation movements, gains/losses on disposal and other non-recurring items. **NAV is EPRA net tangible assets (NTA) per share.
Leasing gains mitigated valuation pressures
FY22 new lettings increased strongly and were well ahead of pre-pandemic levels. Combined with a good level of retentions at lease maturity, and accretive asset recycling, rent roll was broadly maintained and remains well below the estimated market rental value. Net rental income increased by c 12% despite upward pressure on property costs. EPRA earnings also increased by 12% and, allowing for a higher average share count, EPRA EPS was flat at 6.6p. A 12.1% like-for-like decline in property values reduced NAV per share (to 73.5p) and increased LTV (to 49.5%) but outperformed MSCI data which show a c 17% decline in regional office values. We have reduced our FY23 EPRA EPS and DPS forecasts slightly by 0.1p each, representing an unchanged fully covered DPS of 6.6p.
Income-led strategy
In the cyclical commercial property sector, income returns have historically been significantly more stable than volatile capital values and provide a more consistent measure of value. RGL has consistently targeted a higher-yield portfolio that would provide progressive, regular quarterly dividends. This strategy has been successfully executed since listing in November 2015, generating average income returns of 5.9% pa. However, with rising interest rates following the pandemic, with the fog of uncertainty this has created about the future use of, and demand for, office space, capital returns have recently weighed heavily on total returns. Strong leasing and an accelerating return to the office are nonetheless very positive indicators. A November 2022 study by RGL, of its more than 1,000 tenants, showed that 99% had returned to the office, particularly with hybrid working.
Valuation: High distribution policy
RGL continues to offer one of the highest fully covered yields in the sector (12.0%), more than double that of peers, with an almost 25% discount to NAV.
Covered dividend with a 12% yield
The FY22 results were in line with our expectations and the changes to our forecasts are modest. In this note we focus on the success of RGL’s income-driven strategy and the issues that we believe are holding back valuation. These include continuing uncertainty about the future of the office (RGL provides positive data points), relatively high gearing (although fixed-cost borrowings are well inside covenants) and energy efficiency capex requirements (which RGL expects to fall within existing capex programmes and which are reflected in the current portfolio valuation).
FY22 performance summary
We review FY22 financial performance in detail below. In challenging conditions, leasing progress stood out. FY22 new lettings of £5.9m compared with £2.5m in the prior year and £3.8m in FY19, pre-pandemic. Combined with a good level of retentions at lease maturity (c 70%) and accretive asset recycling, rent roll was broadly maintained (£71.8m vs £72.1m at end FY21) and remains well below the estimated market rental value of £92.0m, indicating material income upside potential, primarily from leasing vacant space. Accretive portfolio transactions will add c £1.6m to rent roll as incentives run off, comprising £74.7m (before costs) at an average net initial yield of 8.4% and £84.1m (after costs) of disposals at a blended 4.9% (6.3% excluding vacant properties). The c 12% growth in net rental income primarily reflected a full contribution from prior acquisitions, partly offset by upward pressure on property costs. EPRA earnings also increased by 12% and, allowing for a higher average share count, EPRA EPS was flat at 6.6p. The 12.1% like-for-like decline in property values compared favourably with a 17% decline in regional offices (outside central London) indicated by MSCI data and benefited from the leasing progress.
Income-focused strategy
Since listing in 2015, RGL has consistently pursued an income-focused strategy and maximising dividends. Dividend return (as a percentage of NAV) has averaged 5.9% and has been fully covered by EPRA earnings over the period to end FY22 (the dips in FY18 and FY19 were primarily driven by cash drag from equity raising). Supporting dividends, RGL’s rent collection performance through the pandemic was outstanding (99% in FY20, 98% in FY21 and 99% thus for FY22, with the remaining rent expected to be collected in due course). We believe rent collection performance significantly reflects RGL’s strong, regional asset management platform, maintaining close relationships with tenants. Capital return has been volatile but overall has generated a negative return, predominantly during and since the pandemic, averaging 4.2% pa. The impacts of the pandemic on RGL’s ability to increase occupancy and on office sector valuations have been key factors. We discuss this below.
Combining income with capital, NAV total return has been 3.1% pa since listing. Although below the target of at least 10% pa set at listing in November 2015, based on the share price, total shareholder return was 1.4% over the same period compared to the leading UK Total Return Index, which has generated a negative return of 16.9% over the same period.
Exhibit 1: Returns have been completely driven by income
2015* |
2016 |
2017 |
2018 |
2019 |
2020 |
2021 |
2022 |
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 |
73.5 |
73.5 |
Dividends per share paid (p) |
0.00 |
6.25 |
7.80 |
8.00 |
8.20 |
7.45 |
6.30 |
6.65 |
50.65 |
Dividend return |
0.0% |
5.8% |
7.4% |
7.6% |
7.1% |
6.6% |
6.4% |
6.8% |
50.7% |
Annual average dividend return |
5.9% |
||||||||
Dividend cover (x) |
0.86 |
1.02 |
1.10 |
0.93 |
0.94 |
1.02 |
1.02 |
1.00 |
1.00 |
Capital return |
6.8% |
-0.7% |
-0.6% |
9.2% |
-2.3% |
-12.4% |
-1.4% |
-24.4% |
-26.5% |
Annual average capital return |
-4.2% |
||||||||
NAV total return |
6.8% |
5.1% |
6.7% |
16.8% |
4.9% |
-5.8% |
5.0% |
-17.5% |
24.2% |
Average annual return (%) |
3.1% |
Source: RGL data, Edison Investment Research. Note: *55-day period from 6 November 2015.
Across the UK commercial sector, income returns have historically shown much less volatility than capital returns and this has been true for RGL. External valuation consultants primarily estimate fair values based on comparable recent market transactions on an arm's length basis. At times of uncertainty, the expectations of sellers and buyers may diverge noticeably, reflected in a dearth of transactions and a relative lack of market pricing evidence. The final quarter of 2022 was such a time, although transactions volumes have begun to pick up so far in 2023. Property income may thus be seen as a better guide to long-term value, while permanent capital vehicles such as RGL are at an advantage to open-ended funds that must additionally manage fund outflows and inflows.
Exhibit 2: Income returns versus capital returns |
Source: Regional REIT data, Edison Investment Research |
We forecast continuing high level of income distributions from RGL
FY22 earnings and dividends were in line with our forecasts and NAV was slightly above. We discuss this in more detail below. Although the company has signalled its intentions to continue its progressive dividend policy, for FY23 we forecast an unchanged DPS of 6.6p (previously 6.7p), fully covered by EPRA earnings, with growth in these resuming in FY24 (6.7p). All debt is fixed or hedged at a cost of 3.5%, removing interest rate uncertainty in respect of FY23, although the £50m 5.5% retail eligible bond will require refinancing at maturity in August 2024 (see below). Investment and asset management fees account for c 50% of administrative expenses and are directly linked to NAV, while a further c 25% are linked to the level of gross property income. The key forecasting uncertainty, including the ability to pay covered dividends, is net rental income, which we expect to be flat in FY23 and slightly higher in FY24. A high level of diversification by geography, tenant and industry exposures1 mitigates macroeconomic risks but a continuation of strong leasing progress will to a significant extent rely on structural developments in the office sector (see below).
1 The end-FY22 portfolio consisted of more than 150 properties let to more than 1,000 tenants.
Exhibit 3: Forecast summary
Reported |
New forecast |
Previous forecast |
FY22 vs forecast |
FY23 forecast change |
|||||
£m unless stated otherwise |
FY22 |
FY23e |
FY24e |
FY22e |
FY23e |
FY24e |
£m |
% |
|
Rental & other property income |
76.3 |
75.5 |
76.4 |
76.8 |
77.4 |
N/A |
(0.4) |
(1.8) |
-2.4% |
Non-recoverable property costs |
(13.7) |
(12.8) |
(11.7) |
(14.4) |
(13.1) |
N/A |
0.8 |
0.3 |
-2.4% |
Net rental income |
62.6 |
62.8 |
64.7 |
62.3 |
64.3 |
N/A |
0.3 |
(1.5) |
-2.4% |
Administrative expenses |
(11.4) |
(10.8) |
(11.1) |
(11.6) |
(12.3) |
N/A |
0.2 |
1.5 |
-11.9% |
Net finance expense |
(17.2) |
(18.0) |
(19.2) |
(17.2) |
(17.5) |
N/A |
0.0 |
(0.5) |
2.8% |
EPRA earnings |
34.1 |
33.9 |
34.4 |
33.5 |
34.5 |
N/A |
0.5 |
(0.5) |
-1.6% |
EPRA cost ratio (exc direct property costs) |
16.2% |
15.6% |
15.8% |
33.9% |
32.8% |
N/A |
|||
EPRA EPS (p) |
6.6 |
6.6 |
6.7 |
6.5 |
6.7 |
N/A |
0.1 |
(0.1) |
-1.6% |
DPS (p) |
6.6 |
6.6 |
6.6 |
6.6 |
6.7 |
N/A |
0.0 |
(0.1) |
-1.5% |
Dividend cover (x) |
1.00 |
1.00 |
1.01 |
0.99 |
1.00 |
N/A |
|||
EPRA NTA per share (p) |
73.5 |
73.5 |
73.5 |
72.1 |
72.0 |
N/A |
1.5 |
1.4 |
2.0% |
EPRA NTA total return |
-17.5% |
8.9% |
9.0% |
-19.0% |
9.2% |
N/A |
|||
Gross borrowing |
(440.8) |
(433.8) |
(433.8) |
(442.9) |
(442.9) |
N/A |
|||
Net LTV |
49.5% |
49.0% |
49.5% |
49.5% |
50.2% |
N/A |
Source: Regional REIT reported data for 2022. Edison Investment Research forecasts
Dividend policy is to maximise dividends
UK REITs are required to distribute at least 90% of property income in dividends and, while RGL has the flexibility to lower its pay-out ratio, its policy is to maximise dividends. We see any risk to dividend sustainability being primarily the level of EPRA earnings (taking this as a proxy for ‘property income’2). We would also note the need to fund, through existing cash and debt resources.
2 Property income more closely tracks UK corporate tax accounting, including an impact from capital allowances.
RGL’s rolling capital expenditure programme is c £10m pa. With EPRA earnings fully distributed, if the portfolio enhancement that capital expenditure targets is not recognised in external property valuations, its impact will be to increase gearing (end-FY22 LTV of 49.5%) and reduce capital flexibility.
The only year-on-year decline in EPRA earnings that the company has reported since listing was in 2020 (-9%) as a result of the pandemic. A 10% decline compared with our FY23 forecast would still support a fully covered DPS of more than 5.9p, which would reflect a yield of almost 12%.
Home, office or not at all?
Post-pandemic, opinions remain polarised about the future role of the office in working life, with the risk of economic downturn adding to near-term uncertainty. Throughout this period, RGL’s asset manager has consistently expressed the view that employees will not return to the office in numbers before the end of 2023/early 2024, providing occupiers with the visibility to plan for the future. It seems already clear that different employers will take different approaches, with some form of hybrid working being most common, but RGL expects that most will end up with the majority of employees being in the office for most of the time. At the same time, it expects the trend, evident before the pandemic, towards a more attractive working environment, including more space per employee to continue and provide an offset to other structural or cyclical headwinds. In its November 2022 study, RGL identified that 99% of its office tenants had returned to occupation in some form. It has already observed increasing numbers of employees returning (‘physical occupation’) across all regions and plans to release data shortly.
Meanwhile, office supply remains reasonably tight, with secondary space reducing, often for repurposing for residential, student accommodation or hotel use. While Grade A supply is increasing through targeted development, significantly pre-let, RGL’s leasing performance shows robust demand for the middle ground of good-quality accommodation.
Gearing is relatively high, but borrowing is secure
End-FY22 borrowings of £441m were all fixed or hedged at an average cost of 3.5% with an average duration of 4.5 years. RGL has subsequently repaid c £7m of the Scottish Widows & Aviva facility. After adjustment for end-FY22 cash of £50m, UK total return Index the net loan to value ratio (LTV) was 49.5%, increased from 42.4% at end FY21 by the decline in portfolio value. RGL’s LTV is relatively high compared with peers,3 which benefits overall portfolio income but creates additional volatility to NAV, both positively and negatively (as in FY22). The secured debt facilities (£391m) are all well within LTV covenants of 60% and it would require a more than 15% decline in portfolio value for these to be tested. Meanwhile, the high portfolio yield, protected by significant diversification, generates a strong level of interest cover (c 3.4x at end-FY22).
3 Based on the most recently disclosed data for those companies listed in the valuation comparison table (Exhibit 6).
Exhibit 7: Summary of debt portfolio
Original facility (£m) |
Outstanding (£m) |
Maturity |
Gross loan to value |
Interest terms |
|
Royal Bank of Scotland, Bank of Scotland, & Barclays |
128.0 |
125.7 |
Aug-26 |
50.8% |
SONIA + 2.40% |
Scottish Widows & Aviva |
165.0 |
165.0 |
Dec-27 |
52.0% |
3.28% fixed |
Scottish Widows |
36.0 |
36.0 |
Dec-28 |
42.2% |
3.37% fixed |
Santander |
65.9 |
64.1 |
Jun-29 |
44.9% |
LIBOR + 2.20% |
Total secured bank loan facilities |
394.9 |
390.8 |
|||
Unsecured Retail Eligible Bond |
50.0 |
50.0 |
Aug-24 |
Unsecured |
4.5% fixed |
Total facilities |
444.9 |
440.8 |
Source: Regional REIT
The first debt maturity, in August 2024, is the company’s £50m unsecured Retail Eligible Bond with a fixed coupon of 4.5%. RGL’s preference is to refinance this, at maturity or earlier, with a similar unsecured bond, maintaining financial flexibility. The cost will have increased but the impact on earnings should be relatively muted. A doubling of the current cost (to 9%) would negatively affect EPRA earnings by c £2.3m but RGL hopes to achieve a much lower rate than this. The existing bond, which trades on the London Stock Exchange ORB platform. The mid-price at 14 April 2023 was a little over 94% of par, reflecting a yield to maturity of c 9%. However, market consensus indicates that by the time it reaches maturity, interest rates will have peaked and begun to fall.
Energy efficiency improvements are included in the rolling capex programme
RGL undertakes a rolling programme of capital expenditure aimed at enhancing and maintaining the attractiveness and income-generating capacity of its properties. This has become even more important post-pandemic as more occupiers seek to attract their workforce back to the office into properties that will assist them in meeting their own carbon emission targets. In addition to investments undertaken by tenants, RGL invested £10m in FY22 or 1.1% of the opening portfolio value, in line with the past five-year average.
As part of the government’s drive towards net carbon zero by 2050, minimum energy efficiency standards required, with some exceptions, all rented commercial property to have an Energy Performance Certificate (EPC) rating of E or above by March this year. The expectation is that the minim rating will increase to C by 1 April 2027, and to B by April 2030.
RGL says it is on track to achieve a minimum B rating by 2030 and made significant progress towards this goal in FY22.
Exhibit 8: FY22 progress with EPC ratings
Rating |
31-Dec-21 |
31-Dec-22 |
Movement |
B plus |
9.90% |
16.90% |
700bps |
C |
33.00% |
33.30% |
30bps |
D |
32.80% |
27.20% |
(560)bps |
E and below |
18.20% |
16.00% |
(220)bps |
Exempt (listed buildings) |
6.10% |
6.70% |
60pbs |
Source: Regional REIT
Progress is being made through a combination of investment, within its rolling capex programme, and portfolio repositioning/capital recycling. The external valuation reflected in the balance sheet already allows (is reduced by) an assumed c £60m of capex and RGL does not expect the investment required to achieve EPC compliance to fall outside of this. RGL has already identified, and has been disposing of, properties that cannot be enhanced on an economic basis and the low average capital value of its office portfolio (£126 per sq ft) increases their attraction for alternative use. By way of example, during H121 RGL disposed of the 19-storey Arena Point office tower in Leeds, with vacant possession, to a purchaser intending to demolish it to make way for student accommodation. The sale price was £10.7m or c £140 per sq ft, 16% above the previous valuation. Arena Point was part of a larger site which included a two-storey casino and pub, known as the Podium Buildings. Acquired as part of a portfolio purchase, the potential for the site to be repositioned for alternative use was recognised. Podium was sold to Unite Students for development as large-scale student accommodation. The sales of Podium and Arena Point together secured profits of £9.3m, representing a geared internal rate of return of 24.6%.
FY22 results in detail
As shown in Exhibit 3 above, the FY22 results were in line with our expectations, reflecting a robust income performance but with NAV negatively affected by market-wide property yield widening.
The key points from the results were:
■
Net rental income increased by 12% to £62.6m, with stronger (16%) growth in rental and other property income (including dilapidations and, to a lesser extent, lease surrender charges) offset by higher (up 38%) non-recoverable property costs, largely reflecting inflation pressures and energy costs in particular.
■
Administrative costs increased at a slower pace (8%) than income, with the EPRA cost ratio (excluding direct vacancy costs) reducing to 16.2% from 16.8%. Asset and management fees were higher, linked to average net assets which were higher in the year as a result of the £83m of equity issued in H221 for the acquisition of the Squarestone portfolio.
■
Interest expense increased with higher average borrowing and an increase in the average cost of borrowing from 3.3% to 3.5%, the level at which interest rate caps became fully effective.
■
EPRA earnings increased 12% to £34.1m but, allowing for the increase in average shares outstanding, EPRA EPS was unchanged at 6.6p where it fully covered DPS of 6.6p (+1.5%).
■
Moving on to IFRS earnings, higher interest rates increased the fair value of interest rate hedging instruments, providing a partial offset to net property revaluation movements (realised and unrealised).
■
EPRA NTA per share of 73.5p was 24% lower, negatively affecting NAV total return (-17.5%) and driving the increase in net LTV to 49.5%.
Exhibit 9: Summary of FY22 financial performance
£m unless stated otherwise |
FY22 |
FY21 |
FY22/FY21 |
Rental and other property income |
76.3 |
65.8 |
16.1% |
Non-recoverable property costs |
(13.7) |
(9.9) |
37.7% |
Net rental income |
62.6 |
55.8 |
12.2% |
Administrative & other expenses |
(11.4) |
(10.6) |
7.9% |
Net finance expense |
(17.2) |
(14.9) |
15.5% |
EPRA earnings |
34.1 |
30.4 |
12.1% |
Unrealised and realised property gains/(losses) |
(122.0) |
(7.7) |
|
Change in fair value of interest rate derivative |
22.7 |
6.0 |
|
IFRS earnings |
(65.2) |
28.8 |
|
Shares outstanding (m) |
515.7 |
515.7 |
|
Average number of shares (m) |
515.7 |
459.7 |
12.2% |
Basic IFRS EPS (p) |
(12.6) |
6.3 |
|
EPRA EPS (p) |
6.6 |
6.6 |
|
DPS (p) |
6.60 |
6.50 |
1.5% |
EPRA NTA per share (p) |
73.5 |
97.2 |
-24.4% |
Accounting total return |
-17.5% |
5.0% |
|
Investment properties |
789.5 |
906.1 |
-12.9% |
Net debt |
(390.6) |
(383.8) |
|
Net LTV |
49.5% |
42.4% |
|
EPRA cost ratio (excluding direct vacancy costs) |
16.2% |
16.8% |
Source: Regional REIT data
Exhibit 10: Financial summary
Year end 31 December (£m) |
2019 |
2020 |
2021 |
2022 |
2023e |
2024e |
INCOME STATEMENT |
||||||
Rental & other property income |
64.4 |
62.1 |
65.8 |
76.3 |
75.5 |
76.4 |
Non-recoverable property costs |
(9.4) |
(8.8) |
(9.9) |
(13.7) |
(12.8) |
(11.7) |
Net rental & related income |
55.0 |
53.3 |
55.8 |
62.6 |
62.8 |
64.7 |
Administrative expenses |
(10.9) |
(11.3) |
(10.6) |
(11.4) |
(10.8) |
(11.1) |
EBITDA |
44.1 |
42.0 |
45.2 |
51.2 |
52.0 |
53.6 |
EPRA cost ratio, excluding direct vacancy costs |
18.7% |
19.6% |
16.8% |
16.2% |
15.6% |
15.8% |
Gain on disposal of investment properties |
1.7 |
(1.1) |
0.7 |
(8.6) |
0.0 |
0.0 |
Change in fair value of investment properties |
(3.5) |
(54.8) |
(8.3) |
(113.2) |
0.0 |
0.0 |
Change in fair value of right to use asset |
(0.2) |
(0.2) |
(0.0) |
(0.1) |
(0.1) |
(0.1) |
Operating Profit (before amort. and except.) |
42.0 |
(14.1) |
37.6 |
(70.8) |
51.8 |
53.5 |
Net finance expense |
(13.7) |
(14.0) |
(14.9) |
(17.2) |
(18.0) |
(19.2) |
Fair value movement in interest rate derivatives & goodwill impairment |
(2.0) |
(3.1) |
6.0 |
22.7 |
0.0 |
0.0 |
Profit Before Tax |
26.3 |
(31.2) |
28.8 |
(65.2) |
33.8 |
34.3 |
Tax |
0.3 |
0.2 |
0.0 |
0.0 |
0.0 |
0.0 |
Profit After Tax (FRS 3) |
26.5 |
(31.0) |
28.8 |
(65.2) |
33.8 |
34.3 |
Adjusted for the following: |
||||||
Net gain/(loss) on revaluation/disposal of investment properties |
1.9 |
55.9 |
7.6 |
121.9 |
0.0 |
0.0 |
Other EPRA adjustments |
2.6 |
3.2 |
(6.0) |
(22.6) |
0.1 |
0.1 |
EPRA earnings |
31.0 |
28.1 |
30.4 |
34.1 |
33.9 |
34.4 |
Period end number of shares (m) |
431.5 |
431.5 |
515.7 |
515.7 |
515.7 |
515.7 |
Fully diluted average number of shares outstanding (m) |
398.9 |
431.5 |
459.7 |
515.7 |
515.7 |
515.7 |
IFRS EPS - fully diluted (p) |
6.6 |
(7.2) |
6.3 |
(12.6) |
6.6 |
6.6 |
EPRA EPS (p) |
7.8 |
6.5 |
6.6 |
6.6 |
6.6 |
6.7 |
Dividend per share (p) |
8.25 |
6.40 |
6.50 |
6.60 |
6.60 |
6.60 |
Dividend cover (x) |
0.94 |
1.02 |
1.02 |
1.00 |
1.00 |
1.01 |
BALANCE SHEET |
||||||
Non-current assets |
806.0 |
749.5 |
925.2 |
825.6 |
835.5 |
845.3 |
Investment properties |
787.9 |
732.4 |
906.1 |
789.5 |
799.5 |
809.5 |
Other non-current assets |
18.1 |
17.2 |
19.0 |
36.2 |
36.0 |
35.9 |
Current Assets |
69.4 |
101.1 |
85.5 |
80.4 |
72.6 |
64.6 |
Other current assets |
32.2 |
33.7 |
29.4 |
30.3 |
30.8 |
31.2 |
Cash and equivalents |
37.2 |
67.4 |
56.1 |
50.1 |
41.8 |
33.4 |
Current Liabilities |
(36.2) |
(49.1) |
(58.4) |
(56.6) |
(64.9) |
(65.5) |
Borrowings |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Other current liabilities |
(36.2) |
(49.1) |
(58.4) |
(56.6) |
(64.9) |
(65.5) |
Non-current liabilities |
(355.5) |
(380.9) |
(449.9) |
(446.5) |
(440.5) |
(441.5) |
Borrowings |
(287.9) |
(310.7) |
(383.5) |
(385.3) |
(379.6) |
(380.9) |
Other non-current liabilities |
(67.6) |
(70.3) |
(66.4) |
(61.3) |
(61.0) |
(60.6) |
Net Assets |
483.7 |
420.6 |
502.4 |
402.9 |
402.7 |
402.9 |
Derivative interest rate swaps & deferred tax liability |
2.6 |
5.0 |
(1.0) |
(23.8) |
(23.8) |
(23.8) |
Goodwill |
(0.6) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
EPRA net tangible assets |
485.7 |
425.6 |
501.4 |
379.2 |
378.9 |
379.2 |
IFRS NAV per share (p) |
112.1 |
97.5 |
97.4 |
78.1 |
78.1 |
78.1 |
EPRA NTA per share (p) |
112.6 |
98.6 |
97.2 |
73.5 |
73.5 |
73.5 |
EPRA NTA total return |
4.9% |
-5.8% |
5.0% |
-17.5% |
8.9% |
9.0% |
CASH FLOW |
||||||
Cash (used in)/generated from operations |
26.0 |
48.0 |
56.9 |
48.5 |
59.7 |
53.9 |
Net finance expense |
(12.2) |
(12.5) |
(13.1) |
(15.2) |
(16.4) |
(17.6) |
Tax paid |
(0.8) |
0.2 |
0.0 |
0.0 |
0.0 |
0.0 |
Net cash flow from operations |
13.0 |
35.7 |
43.8 |
33.3 |
43.4 |
36.3 |
Net investment in investment properties |
(25.6) |
(0.3) |
(98.3) |
(5.2) |
(10.0) |
(10.0) |
Acquisition of subsidiaries, net of cash acquired |
(43.9) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Other investing activity |
0.2 |
0.1 |
0.0 |
0.1 |
0.0 |
0.0 |
Net cash flow from investing activities |
(69.4) |
(0.2) |
(98.2) |
(5.1) |
(10.0) |
(10.0) |
Equity dividends paid |
(32.5) |
(26.7) |
(27.8) |
(34.0) |
(34.0) |
(34.0) |
Debt drawn/(repaid) - including bonds and ZDP |
3.5 |
22.2 |
73.8 |
14.3 |
0.0 |
0.0 |
Net equity issuance |
60.5 |
0.0 |
(0.1) |
0.0 |
0.0 |
0.0 |
Other financing activity |
(42.7) |
(0.8) |
(2.7) |
(14.5) |
(7.7) |
(0.7) |
Net cash flow from financing activity |
(11.2) |
(5.3) |
43.2 |
(34.2) |
(41.7) |
(34.7) |
Net Cash Flow |
(67.6) |
30.1 |
(11.2) |
(6.0) |
(8.3) |
(8.4) |
Opening cash |
104.8 |
37.2 |
67.4 |
56.1 |
50.1 |
41.8 |
Closing cash |
37.2 |
67.4 |
56.1 |
50.1 |
41.8 |
33.4 |
Balance sheet debt |
(337.1) |
(360.1) |
(433.1) |
(435.0) |
(429.5) |
(430.9) |
Unamortised debt costs |
(6.9) |
(6.0) |
(6.9) |
(5.8) |
(4.3) |
(2.9) |
Closing net debt |
(306.8) |
(298.8) |
(383.8) |
(390.6) |
(392.0) |
(400.4) |
LTV |
38.9% |
40.8% |
42.4% |
49.5% |
49.0% |
49.5% |
Source: Regional REIT historical data, Edison Investment Research forecasts
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Research: TMT
Vection Technologies reported a 60% uplift in its total contract value (TCV) to A$16m from the TCV metric announced at the half year, driven by new contract wins, upsells from existing clients and recognising delayed contracts from Q223. Delivering rapid contract growth in H223 instils further confidence in management’s FY23 revenue guidance of A$24–26m for its IntegratedXR technology stack, reflected in the 9% rise in share price following the announcement. As illustrated by our previous note, promising pilot projects, including a potential A$30m tender in the defence sector, should bolster the company’s growth trajectory. A proven track record of converting c 100% of TCV into revenue by year-end further de-risks the group’s FY23 growth target and our forecasts, which are unchanged.
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