Regional REIT — FY19 momentum and COVID-19 defences

Regional REIT (LSE: RGL)

Last close As at 20/04/2024

GBP0.21

0.70 (3.38%)

Market capitalisation

GBP111m

More on this equity

Research: Real Estate

Regional REIT — FY19 momentum and COVID-19 defences

Regional REIT’s (RGL) results for the year to 31 December 2019 (FY19) confirmed its strategic and operational progress, with the financial results in line with expectations and the Q419 DPS paid as planned. Positive momentum in regional office and light industrial markets continued into FY20, but was punctuated by COVID-19. However, the portfolio is highly diversified and Q2 rent collection experience is encouraging, supported by an integrated asset management platform. The management team is experienced, borrowings are secure, and liquidity strong.

Martyn King

Written by

Martyn King

Director, Financials

Real Estate

Regional REIT

FY19 momentum and COVID-19 defences

FY19 results

Real estate

24 April 2020

Price

70p

Market cap

£302m

Net debt (£m) at 31 December 2019

306.8

Net LTV at 31 Dec.2019

38.9%

Shares in issue

431.5m

Free float

100%

Code

RGL

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

23.4

(39.6)

(33.5)

Rel (local)

5.0

(21.4)

(14.6)

52-week high/low

122.4p

55.8p

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 event

2020 AGM

Date to be confirmed

Q120 trading update

21 May 2020

Analyst

Martyn King

+44 (0)20 3077 5745

Regional REIT is a research client of Edison Investment Research Limited

Regional REIT’s (RGL) results for the year to 31 December 2019 (FY19) confirmed its strategic and operational progress, with the financial results in line with expectations and the Q419 DPS paid as planned. Positive momentum in regional office and light industrial markets continued into FY20, but was punctuated by COVID-19. However, the portfolio is highly diversified and Q2 rent collection experience is encouraging, supported by an integrated asset management platform. The management team is experienced, borrowings are secure, and liquidity strong.

Year end

Net rental
income (£m)

Adjusted earnings (£m)

Adjusted
EPS* (p)

EPRA NAV*/
share (p)

DPS
(p)

P/NAV
(x)

Yield
(%)

12/16

38.1

21.3

7.8

106.9

7.65

0.65

10.9

12/17

45.8

25.6

8.6

105.9

7.85

0.66

11.2

12/18

54.4

27.9

7.5

115.5

8.05

0.61

11.5

12/19

55.0

31.0

7.8

112.7

8.25

0.62

11.8

Note: Adjusted earnings exclude revaluation movements, gains/losses on disposal, and other non-recurring items, and unlike EPRA earnings also exclude performance fees. *Fully diluted.

Diversified tenant base and robust Q2 rent collection

As at 6 April 2020, 81.6% of Q2 rents invoiced had been collected (an increase from 68.2% as reported in the 31 March trading update), a modest drop on the same point in FY19 (83.1%) and supported by an integrated management approach that allows RGL to stay close to tenants. Tenants agreeing to switch to monthly payments represented an additional 4.8% of invoiced rents and RGL said that it expects to receive more than 90% of invoiced rents in the near-term. The tenant base is highly diversified and the experienced management team has worked together for a long time including through previous downcycles. Borrowings are secure with no near-term maturities and liquidity is strong.

FY19 results in line

Driven mainly by net acquisitions, the portfolio increased 9.7% to £788m (94% regional office/light industrial). Supported by a growing rent roll, robust occupancy and lower debt costs, adjusted earnings increased 10.9% to £31m and adjusted EPS by 3.7% to 7.8p. The previously declared Q419 DPS, taking the annual total to 8.25p, was paid in early April. The like-for-like value of the core office and industrial assets (94% by value) increased by 1.4% and, including retail, the overall portfolio value was down an underlying 0.1%. EPRA NAV per share fell 2.4% to 112.7p. LTV at c 39% remains within the 40% target. Given sector-wide uncertainties, we have temporarily withdrawn our forecasts, but note that FY19 net acquisitions will contribute for a full year in FY20 with continuing asset management opportunities.

Valuation: Strong income focus remains

RGL’s highly diversified, income-led approach has delivered an average annual total return of 9.0% since IPO. The trailing dividend yield is close to 12% and the discount to end-FY19 NAV almost 40%. It is too early to assess the impact of COVID-19, but RGL remains committed to paying regular quarterly dividends, subject to market and trading performance and REIT guidelines.

COVID-19 update in detail

2019 was another active year for RGL, delivering further growth in the portfolio, part-funded by the £62.5m (before costs) equity capital increase in July 2019, in rent roll, and in underlying earnings. Total DPS for the year increased (by 2.5%), as it has in each of the four years since IPO.

Before discussing the FY19 results in more detail, we provide an update on the COVID-19 impact, and RGL’s preparedness and responses.

Robust rent collection…

As at 6 April 2020, 81.6% of rents invoiced had been collected (an increase from 68.2% as reported in the 31 March trading update). The drop in collections at the same point in FY19 (83.1%) is relatively modest. Tenants who have agreed to switch to monthly payments represent an additional 4.8% of invoiced rents and RGL said that it expected a further 2.3% of rents due to be settled within seven days. Overall, RGL said that it was expecting to receive more than 90% of invoiced rents in the near-term and is hopeful of receiving all agreed rents by mid-year.

…supported by integrated asset management

RGL points to the granular, fully integrated asset management approach employed by the external asset manager, London & Scottish Property Investment Management (LSPIM), which helps it to stay close to tenants, providing useful support, and is likely to assist the company in optimising occupancy/rental collection during this crisis. LSPIM is responsible for the day-to-day management of the asset and debt portfolios, and operates from its base in Glasgow with a regional office network in Leeds, Manchester and London. The senior management team has worked together for a long time and has experience of managing portfolios for cash in downcycles.

Alongside LSPIM, Toscafund Asset Management (Toscafund) is the investment manager for RGL, responsible for the management functions of the company. Recognising the contribution the asset and investment managers to RGL’s performance and the importance of providing continuity of management, especially at this challenging time, it has been agreed with the company that the management agreements will remain in place beyond the scheduled expiry later in 2020, until November 2023.

Portfolio diversification mitigates income risks

Portfolio diversification, by geography, property and individual occupiers (as well as the industries in which they operate) is a key element of the company’s strategy to mitigate the cyclical risks to income that are inherent in the commercial property sector and that have been brought rapidly to the fore by COVID-19. As at 31 December 2019, the portfolio comprised 160 properties with 904 tenants (the largest representing 2.5% of rent roll). Around 41% of the tenants are multinational or FTSE 350 and above sized companies, and c 51% of tenants provide services that are classified as essential in the government’s COVID-19 lockdown guidance. Around 94% of the portfolio by value represents office and light industrial units located in the regional centres of the UK outside of the M25 motorway, market segments that were continuing to benefit from increasing occupational demand, rising rents and positive supply-demand fundamentals ahead of the COVID-19 crisis (see below).

Secure funding with good liquidity

Significant refinancing activity, particularly over the past year, has increased the amount of available funding, while rationalising the number of facilities has increased average debt maturity and lowered the average cost. From a peak of c 49% in 2017 immediately after the Conygar acquisition, loan to value (LTV) has been steadily reduced in line with the group’s medium-term target of c 40%.

At 30 December 2019 (FY19), RGL had debt facilities of c £372m (including unamortised debt arrangement costs), of which c £344m was drawn and outstanding. Allowing for c £37m of cash, net debt was c £307m and the LTV was 38.9%. The weighted average term to maturity was 7.3 years with no near-term maturities and an average cost (including hedging costs) of 3.5% pa. Since end-FY19, RGL has drawn down the available funding on the Santander and Royal Bank of Scotland facilities, taking total gross borrowing at 31 March 2020 to £369.1m and increasing the cash balance to £69.1m. Based on the end-FY19 gross property asset value, the 31 March 2020 LTV remained at c 39%. Allowing for the unsecured Retail Eligible Bond debt, the end-FY19 LTV ratios on the secured debt facilities were mostly below the group average LTV.

RGL has a target that at least 90% of the loan portfolio is hedged using fixed-rate facilities or interest rate swaps, and at end-FY19 the portfolio was more than 100% hedged.

Exhibit 1: Summary of debt portfolio at 31 December 2019

Original facility (£m)

Outstanding (£m)*

Maturity

Gross loan to value

Interest terms

Royal Bank of Scotland

55.0

48.6

Jun-24

39.8%

Libor + 2.15%

Scottish Widows & Aviva

165.0

165.0

Dec-27

45.1%

3.28% fixed

Scottish Widows & Aviva

36.0

36.0

Dec-28

38.9%

3.37% fixed

Santander

65.9

44.4

Jun-29

26.4%

Libor + 2.20%

Total secured facilities

321.9

294.0

Retail Eligible Bond

50.0

50.0

Aug-24

N/A

4.5% fixed

Total facilities

371.9

344.0

Source: Regional REIT. Note: *Outstanding debt includes unamortised loan arrangement fees.

Each of the secured debt facilities has its own distinct covenants, which generally include historic interest cover (tested quarterly), LTV cover (tested annually), and debt service cover (tested quarterly). RGL was in compliance with all of these throughout FY19 and expects the same at 31 March 2020 (Q120) and says that at the end of the year had substantial borrowing headroom in relation to the covenants. Depending on rent collections the rent cover position in Q220 may be more challenging but RGL says that it enjoys strong and close relationships with its lenders and that it expects no issues to arise.

Market background and portfolio update

Positive 2019 fundamentals carried into 2020

Regional offices represented 79.9% of the 31 December 2019 portfolio by value and light industrial assets 13.7%, with retail assets accounting for just 5%. During 2019 and early 2020, supply-demand fundamentals for both regional office and industrial sectors remained positive with robust occupier demand, despite Brexit uncertainty and some weakening in overall economic growth prospects and limited new supply. In the investment market, UK-wide commercial real estate investment volumes weakened in H119, although there are some signs that the impact in the regions was more muted than for London. Overall UK volumes were lower during 2019 (13% below the five-year average according to Lambert Smith Hampton), but accelerated in the second half of the year, and in the regions outside London, the fourth quarter pick-up in volumes was notable.

Regional office rents continued to experience upward pressure, contributing to an ungeared total property return of 8.6% according to CBRE, outperforming the central London total return of 5.8%, as has been the case over the past four years.

Occupier demand in the industrial market softened in 2019, but remained positive and sufficient to absorb new supply, supporting continuing rental growth but at a slower pace than in 2018.

Robust occupancy and achieved rental growth

In 2019, RGL’s annual gross contracted rent roll increased from £59.7m to £64.3m including a c £6.3m net addition from acquisitions and disposals. Disposals, primarily in H119, amounted to £24.3m (net of costs), reflecting an average net initial yield of 6.8% and achieving an average uplift on the end-2018 valuation of 10.3%. Acquisitions, primarily in H219, amounted to £87.1m (before costs), adding £8.0m to annualised gross contracted rental income and reflecting an average net initial yield of 8.6%. EPRA occupancy across the portfolio was flat at 89.4% (slightly up in industrial and slightly down in offices as two properties became vacant), but on a like-for-like basis was slightly lower at 88.1% compared with 89.6% at the end of 2018. Together with the reduction in contracted rents on the small retail exposure in the portfolio (5% by value) and partly offset by rent uplifts on leasing events, this explains the c £1.8m like-for-like reduction in contracted rent roll. Lease renewals for office and industrial assets achieved an uplift in gross rent roll of 9.8% on average, while 71 new lettings (356k sq ft) were completed, providing a gross rental income of £3.8m when fully occupied.

The portfolio value increased by 9.4% to £788m, primarily reflecting net acquisitions, but also including capital expenditure and a net negative unrealised valuation movement of £3.5m (including c £2.8m of property acquisition costs, mostly related to deployment of the proceeds of the July capital raise). The like-for-like value of the group’s core office and industrial assets (93.6% by value) increased by 1.4% after adjusting for capital expenditure and disposals during the period. Including retail, the overall portfolio value was down an underlying 0.1%.

Too early to assess COVID-19 impacts

It remains too early to be able to assess the longer-term impact of COVID-19. In the near term, the focus is on optimising the collection of contracted rents while providing support to tenants where this is appropriate. The most obvious immediate effect is on cash flow, for which the strong cash position provides an immediate cushion. Depending on the extent and duration of the pandemic, the longer-term impact on tenants and the broader economy, and the implications of this for occupancy and contracted rents, will become clearer. A swift and significant rebound in activity following the period of lockdown is to be hoped for but, despite significant efforts by government and the central banks to support economies, the occupational market seems likely to be softer than before the pandemic. Positively, in contrast to the last major economic and commercial property downturn in 2018, interest rates remain low and rents have not risen so far as to encourage widespread speculative development activity. RGL’s focus on the regional property and light industrial sectors and its highly diversified tenant base are positive factors.

The potential impact of COVID-19 on property valuations and NAV is similarly unclear at this stage, although RGL’s Q120 trading update scheduled for 21 May 2020 may provide an update on the immediate impact on its own property valuations. Given the lack of representative transactions taking place from which to extract pricing evidence, a statement highlighting material uncertainty has recently introduced by external valuers across the sector.

Financials and valuation

In Exhibit 2 we summarise the FY19 financial performance. Net rental income and underlying earnings were slightly ahead of our last published forecasts and EPRA NAV per share slightly below, but consistent with the portfolio valuation update contained in the late-January trading update.

Exhibit 2: Summary of FY19 financial performance

FY19

FY18

FY19/FY18

£m unless stated otherwise

IFRS

Adj.

Adj. earnings

IFRS

Adj.

Adj. earnings

Adj. earnings

Rental income

75.6

75.6

74.0

74.0

2.2%

Property costs

(20.7)

(20.7)

(19.6)

(19.6)

5.3%

Net rental income

55.0

55.0

54.4

54.4

1.1%

Administrative & other expenses

(10.9)

(10.9)

(10.5)

(10.5)

3.5%

Performance fee

0.0

0.0

(7.0)

7.0

0.0

Operating profit before gains/(losses) on property

44.1

0.0

44.1

36.8

7.0

43.8

0.5%

Gain on disposal of investment property

1.7

(1.7)

0.0

23.1

(23.1)

0.0

Change in fair value of investment property

(3.5)

3.5

0.0

23.9

(23.9)

0.0

Amortisation of right of use asset

(0.2)

(0.2)

Operating profit

42.0

1.9

43.9

83.8

(40.0)

43.8

0.1%

Net finance expense

(13.7)

0.5

(13.2)

(15.7)

0.4

(15.3)

-13.4%

Impairment of goodwill/change in fair value of derivatives

(2.0)

2.0

0.0

(0.1)

0.1

(0.0)

Profit before tax

26.3

4.4

30.6

67.9

(39.4)

28.5

7.4%

Tax

0.3

0.1

0.4

(0.6)

0.0

(0.6)

Net profit

26.5

4.5

31.0

67.4

(39.4)

27.9

10.9%

Basic IFRS EPS (p)

6.6

18.1

Diluted EPRA EPS (p)

7.8

5.6

38.6%

Diluted adjusted EPS

7.8

7.5

3.7%

DPS (p)

8.25

8.05

2.5%

Diluted EPRA NAV (p)

112.7

115.5

-2.4%

Investment properties

787.9

718.4

9.7%

Net LTV

38.9%

38.3%

Source: Regional REIT data

The key features of earnings on an underlying basis were:

Net rental income increased slightly to £55.0m, reflecting an increase in the portfolio size as well as achieved rental growth during the year, partly offset by increased non-recoverable property expenses.

Administrative expenses increased with the growth in NAV, as well as some one-off fees (partly linked to the ZDP maturity) and underlying operating profit before realised and unrealised gains and losses on the property portfolio increased 0.5% to £44.1m. The EPRA cost ratio was 31.6% (including direct vacancy costs) compared with 40.1% in FY18 (or 28.6% excluding the FY19 performance fee accrual).

Net finance expenses were lower, reflecting a reduction in both average borrowings and the average cost of debt. Of note was the February 2019 repayment at maturity of c £40m of 6.5% zero dividend preference shares. The 3.5% weighted average cost of debt at end-FY19 compared with 3.8% at end-FY18.

Underlying profit before tax increased 7.4% and underlying net profit, including a small tax credit, increased by 10.9% to £30.6m. Underlying EPS, allowing for the increased number of shares in issue following the £62.5m (gross) equity capital increase in July 2019, increased 3.7% to 7.8p. With no performance fee adjustment in the year, there was no difference between underlying and EPRA earnings. DPS of 8.25p was 95% covered.

Reported (IFRS) earnings include realised gains on property disposals (£1.7m), negative unrealised movements in property valuation (£3.5m, including £2.8m of acquisition costs written off), negative fair value changes to interest rate hedging instruments (£1.5m), impairment of goodwill (£0.6m), close-out costs on borrowings and derivatives (£0.5m) and a small (£0.1m) deferred tax charge.

Including the above, the IFRS net profit was £26.5m and basic EPS was 6.6p.

EPRA NAV per share reduced slightly to 112.7p (end-FY18: 115.5p) and including DPS paid the EPRA NAV total return was 4.7%. That brought the cumulative total since IPO in November 2015 to 43.0% or a compound annual average return of 9.0%. Dividends accounted for 70% of the cumulative total return and an investment at IPO would have generated an IRR of more than 10%.

Given the immediate sector-wide uncertainty regarding cash flows, rental income and property valuations, we have temporarily withdrawn our forecasts and will seek to reinstate these as soon as a clearer picture emerges. In addition to our observations above regarding portfolio diversification, secure funding and a strong level of current liquidity, we would also note that net property acquisition activity in 2019 made only a partial contribution in the year. We estimate a potential further uplift to gross rental income of more than £1m in 2020. Additionally, the end-FY19 estimated rental value at full occupancy was £72.2m, well ahead of the £64.3m gross contracted rent roll, suggesting that there will be continuing opportunities to support income through continued active asset management even in a likely softer letting market.

Share price valuation

Given the sector-wide uncertainties, we are unable to provide a meaningful, forward-looking comparison with peers, but based on the FY19 DPS of 8.25p, RGL has a trailing dividend yield of c 11% and trades at a more than 30% discount to end-FY19 EPRA NAV per share. This valuation is clearly building in material sustained negative impacts from the COVID-19 crisis. We estimate that for the EPRA NAV per share to fall to the current share price (such that the share price would then represent 1.0x NAV), a c 23% reduction in the portfolio value would be required. As a result of the recent share price decline, the trailing dividend yield has increased from c 7.5% at the time of our November 2019 outlook note) and reflects sector-wide uncertainty about cash flows and future dividend pay-outs. At the current share price, a prospective 7.5% dividend yield would imply a reduced 5.25p DPS. If based on the FY19 income statement we estimate that this would be consistent with a c 12% reduction in the gross rental and other income (including service charge income) reported in the year and a full pay-out of the resulting adjusted earnings. Our analysis suggests that the same result could actually be achieved with a larger underlying reduction in rental income if allowance is made for the expected increased contribution to FY20 rental income from a full period contribution from the FY19 acquisitions and ongoing asset management initiatives.

Exhibit 3: Financial summary

Year end 31 December (£000's)

2016

2017

2018

2019

PROFIT & LOSS

IFRS

IFRS

IFRS

IFRS

Rental income

42,994

61,610

74,019

75,645

Non-recoverable property costs

(4,866)

(15,763)

(19,644)

(20,681)

Net rental income

38,128

45,847

54,375

54,964

Administrative expenses (excluding performance fees)

(7,968)

(7,819)

(10,540)

(10,904)

Performance fees

(249)

(1,610)

(7,046)

0

EBITDA

29,911

36,418

36,789

44,060

EPRA cost ratio

n.a

29.7%

40.1%

31.6%

EPRA cost ratio excluding performance fee

n.a

26.6%

28.6%

30.9%

Gain on disposal of investment properties

518

1,234

23,127

1,662

Change in fair value of investment properties

(6,751)

5,893

23,881

(3,513)

Change in fair value of right to use asset

(194)

Operating profit before financing costs

23,678

43,545

83,797

42,015

Exceptional items

0

0

0

0

Net finance expense

(8,629)

(14,513)

(15,715)

(13,725)

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

(1,654)

(340)

(142)

(2,036)

Profit Before Tax

13,395

28,692

67,940

26,254

Tax

23

(1,632)

(567)

257

Profit After Tax (FRS 3)

13,418

27,060

67,373

26,511

Adjusted for the following:

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

6,233

(7,127)

(47,008)

1,851

Net movement in the fair value of derivative financial investments

865

(407)

(459)

1,479

Other EPRA adjustments including deferred tax adjustment

557

4,488

987

1,146

EPRA earnings

21,073

24,014

20,893

30,987

Performance fees & exceptional items

249

1,610

7,046

0

Adjusted earnings

21,322

25,624

27,939

30,987

Period end number of shares (m)

274.2

372.8

372.8

431.5

Fully diluted average number of shares outstanding (m)

274.3

297.7

372.8

398.9

IFRS EPS - fully diluted (p)

4.9

9.1

18.1

6.6

Adjusted EPS, fully diluted (p)

7.8

8.6

7.5

7.8

EPRA EPS, fully diluted (p)

7.7

8.1

5.6

7.8

Dividend per share, declared basis (p)

7.65

7.85

8.05

8.25

Dividend cover

101.6%

109.7%

93.1%

94.2%

BALANCE SHEET

Non-current assets

506,401

740,928

720,886

805,980

Investment properties

502,425

737,330

718,375

787,915

Other non-current assets

3,976

3,598

2,511

18,065

Current Assets

27,574

66,587

126,986

69,406

Other current assets

11,375

21,947

22,163

32,158

Cash and equivalents

16,199

44,640

104,823

37,248

Current Liabilities

(23,285)

(42,644)

(83,685)

(36,190)

Bank and loan borrowings - current

0

(400)

(40,216)

0

Other current liabilities

(23,285)

(42,244)

(43,469)

(36,190)

Non-current liabilities

(218,955)

(371,972)

(334,672)

(355,468)

Bank and loan borrowings - non-current

(217,442)

(371,220)

(334,335)

(337,142)

Other non-current liabilities

(1,513)

(752)

(337)

(18,326)

Net Assets

291,735

392,899

429,515

483,728

Derivative interest rate swaps & deferred tax liability

1,513

2,802

971

2,552

EPRA net assets

293,248

395,701

430,486

486,280

IFRS NAV per share (p)

106.4

105.4

115.2

112.1

Fully diluted EPRA NAV per share (p)

106.9

105.9

115.5

112.7

CASH FLOW

Cash (used in)/generated from operations

31,434

40,251

38,817

26,022

Net finance expense

(6,626)

(9,167)

(11,923)

(12,748)

Tax paid

(1,715)

(236)

(1,467)

(839)

Net cash flow from operations

23,093

30,848

25,427

12,435

Net investment in investment properties

(99,286)

(8,267)

100,601

(25,623)

Acquisition of subsidiaries, net of cash acquired

(5,573)

(51,866)

(32,629)

(43,943)

Other investing activity

60

25

220

163

Net cash flow from investing activities

(104,799)

(60,108)

68,192

(69,403)

Equity dividends paid

(15,723)

(23,321)

(29,429)

(32,534)

Debt drawn/(repaid) - inc bonds and ZDP

91,417

13,921

(547)

(36,366)

Net equity issuance

0

71,256

(1,190)

60,503

Other financing activity

(1,744)

(4,155)

(2,270)

(2,210)

Net cash flow from financing activity

73,950

57,701

(33,436)

(10,607)

Net Cash Flow

(7,756)

28,441

60,183

(67,575)

Opening cash

23,955

16,199

44,640

104,823

Closing cash

16,199

44,640

104,823

37,248

Balance sheet debt

(217,442)

(371,620)

(374,551)

(337,142)

Unamortised debt costs

(2,618)

(4,843)

(5,752)

(6,858)

Closing net debt

(203,861)

(331,823)

(275,480)

(306,752)

Source: Regional REIT data

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 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 2020 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

1,185 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 £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 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 2020 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

1,185 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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Ebiquity’s new CEO is to be Nick Waters, joining from Dentsu Aegis on 1 July. His experience both at Dentsu, and previously at Mindshare, should be a good fit, bringing experience of media agencies and working with advertisers. The group is set to issue its formal FY19 results in early May. The COVID-19 update adds further detail to that published last month, with cost saving measures in place. The group had net debt of £6m at end March and has £5m of further headroom in its borrowing facilities. The earnings outlook depends to an extent on advertiser behaviour over the remainder of the year. In the absence of management guidance, our forecasts are currently suspended.

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