Regional REIT — Lancing the boil?

Regional REIT (LSE: RGL)

Last close As at 24/04/2024

GBP0.22

−0.25 (−1.13%)

Market capitalisation

GBP113m

More on this equity

Research: Real Estate

Regional REIT — Lancing the boil?

Regional REIT (RGL) has declared an unchanged Q423 DPS of 1.2p per share and is making good progress with asset sales. However, with H223 property valuations following the market lower, and a subsequent further increase in the loan to value ratio (LTV), investors are focused on RGL’s refinancing plans, particularly the near maturity of its unsecured bonds. The company is considering a range of options, explored in this note, which likely include an equity raise. By removing uncertainty, an equity raise has the potential to materially improve the share rating.

Martyn King

Written by

Martyn King

Director, Financials

Real Estate

Regional REIT

Lancing the boil?

Q423 trading update

Real estate

1 March 2024

Price

21p

Market cap

£108m

Net debt (£m) at 31 December 2023

386

Net LTV at 31 December 2023

55.1%

Shares in issue

515.7m

Free float

88%

Code

RGL

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(28.0)

(27.9)

(65.2)

Rel (local)

(27.9)

(29.8)

(64.0)

52-week high/low

61.6p

20.2p

Business description

Regional REIT is focused on office assets in the regional centres of the UK, outside the M25, 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

FY23 results

26 March 2024

Analyst

Martyn King

+44 (0)20 3077 5700

Regional REIT is a research client of Edison Investment Research Limited

Regional REIT (RGL) has declared an unchanged Q423 DPS of 1.2p per share and is making good progress with asset sales. However, with H223 property valuations following the market lower, and a subsequent further increase in the loan to value ratio (LTV), investors are focused on RGL’s refinancing plans, particularly the near maturity of its unsecured bonds. The company is considering a range of options, explored in this note, which likely include an equity raise. By removing uncertainty, an equity raise has the potential to materially improve the share rating.

Year end

Net rental
income (£m)

EPRA
earnings* (£m)

EPRA
EPS* (p)

NAV**/
share (p)

DPS
(p)

P/NAV
(x)

Yield
(%)

12/21

55.8

30.4

6.6

97.2

6.50

0.22

30.2

12/22

62.6

34.1

6.6

73.5

6.60

0.29

30.7

12/23e

54.2

27.2

5.3

58.7

5.25

0.37

24.4

12/24e

53.8

25.0

4.8

58.7

4.80

0.37

22.3

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.

Market weakness creates further pressure on gearing

Total 2023 DPS of 5.25p is in line with RGL’s target following the Q2 rebasing to 1.2p per quarter. The 5.9% like-for-like decline in property valuations in H2 increased LTV to 55.1%, despite asset sales and debt reduction. End-FY23 NAV/share has not yet been published, but our forecast falls to 59p from 61p. The pressure to reduce LTV, in particular by repayment of the £50m, 4.5% unsecured bond that matures in August, has increased at a time when investment market activity remains weak. Despite good progress in FY24 to date, with £5m of disposals completed and £22m in solicitors’ hands, asset sales alone may not bridge the gap, particularly on value-creating terms. This is weighing heavily on the shares. RGL says it is actively exploring a range of refinancing options for the retail bond, which we focus on in this note. We believe an equity raise has the potential to meet immediate funding needs, substantially lower LTV and lift the share rating by removing uncertainty.

Capital raising options

Refinancing the unsecured bond would be expensive (perhaps 12% pa or more) and would not reduce LTV. We currently forecast asset sales of £60m in FY24, focused on vacant space to mitigate income loss. However, the scale of sales required to refinance the bond and maintain a sufficient level of secured debt collateral is much higher. In current market conditions, this seems challenging and as an alternative we illustrate the impact on our FY24 forecasts of a range of asset sale and equity raising scenarios. For example, a £75m equity raise in combination with £60m of assets sales would immediately reduce LTV to 40%, in line with RGL’s medium-term target. Assuming full pre-emption rights, for shareholders exercising their entitlement to new shares, there is no dilution of their share of earnings, dividends, or net assets, although in per share terms these are lower, as is return on equity. Nonetheless, having de-geared, a potential re-rating could more than compensate.

Valuation: Equity raise could be cathartic

In the £75m equity raise scenario above, we estimate a re-rating of the de-geared RGL to a peer group P/NTA would represent a share price that is 29% above the rights adjusted price and a dividend yield of c 11%.

Details of the trading update

Following a Q123 DPS of 1.65p, the quarterly DPS was rebased to a more sustainable level of 1.2p. Aggregate FY23 dividends declared are 5.25p and the annualised run rate going into FY24 is 4.8p. The Q124 DPS declaration is scheduled for May, following the release of FY23 results on 26 March.

The end-FY23 portfolio was valued at £700.7m compared with £789.5m at end-FY22.

During the year, disposals amounted to £26.1m (before costs) at a blended net initial yield of 4.5% (7.9% excluding vacant units), broadly in line with the respective valuation points. £11.5m of the disposals came in H2, including the sale of the Venlaw and Elmbank Gardens offices at Charing Cross, Glasgow, for £6.25m, 26.3% ahead of the end-H123 valuation. The purchaser intends to redevelop the office space for student and residential use. So far in FY24, completed sales amount to £5.0m (before costs) at a blended net initial yield of 10.7%, in line with the December valuation, while a further £22.2m of disposals is agreed and in solicitors’ hands.

New lettings for the year amounted to c £2.5m pa of new rental income (£1.2m in the first half of the year and £1.3m in the second half), on average completed well above estimated rental value (ERV).2 RGL says that the leasing market has been slower than it anticipated, with occupiers maintaining a cautious ‘wait and see’ approach when it comes to new long-term commitments, primarily reflecting uncertainty around future office working patterns, but also due to macroeconomic and geopolitical concerns. Nonetheless, the company has recently seen an increasing number of enquiries for its assets.

  1 New lettings of £1.6m between January and September 2023 were at an average 11.3% uplift to the 31 December 2022 ERV. In the final quarter of the year, RGL says that notable new lettings in aggregate amounted to c £0.9m pa of new rent and aggregate lease renewals amounted to c £1.5m, reflecting in aggregate an increase of a 6.7% above 30 June 2023 ERV.

New letting activity has been offset by the impact of net lease expiry and cancellations. The end-FY23 gross rent roll was £67.8m, £2.0m lower than the £69.8m at end-H123 (end-FY23: £71.8m), including the impact of disposals that we estimate at £0.8m. ERV was £87.0m compared with £88.9m at end-H123, with disposals having a greater impact than for rent roll.

With EPRA basis occupancy3 of 80.0% (H1: 82.5%; end-FY23: 83.4%), the income potential from an improvement in occupier demand and the leasing of vacant space is significant. With occupiers increasingly focused on building quality and sustainability credentials, the strong improvements in portfolio EPC4 ratings during the year, continuing through Q4, are positive. RGL says it remains on target to achieve EPC ratings of B or better across the portfolio by 2030, to be achieved primarily within its rolling capex programme and through disposals, particularly for alternative uses.

  2 The ERV of occupied space as a proportion of total ERV.

  3 Energy Performance Certificates.

Exhibit 1: Strongly improved EPC ratings

31 December 2023

31 December 2022

Movement (basis points)

B plus and Exempt

42.1%

23.6%

18.5

C

31.6%

33.3%

-1.7

D

15.7%

27.2%

-11.5

E and below

10.6%

16.0%

-5.4

Source: Regional REIT

RGL’s low valuation reflects more than the challenges to the office sector

In our view, RGL’s hugely depressed share rating, with a discount to net tangible assets (P/NTA) of less than 0.5x and a prospective yield of 16.2%, reflects far more than the challenges that the office sector has been facing. RGL’s balance sheet structure currently weighs most heavily on the shares, in particular its LTV that is well above the listed sector average and the impending unsecured bond maturity in August 2024. The company says that LTV reduction continues to be a key focus and that it plans to reduce LTV to the long-term target of 40% through selective sales and repayment of debt. Meanwhile it is actively exploring a range of refinancing options for the retail bond. We believe that given the continuing weak investment market, a challenging backdrop against which to make value-creating asset disposals, it would be sensible for equity raising to be among the refinancing options. We believe this has the potential for a cathartic effect on the low valuation.

Exhibit 2: Peer group performance and valuation summary

Price
(p)

Market cap.(£m)

P/NAV*
(x)

Yield**
(%)

NAV yield***
(%)

Share price performance

1 month

3 months

1 year

3 years

Custodian Property Income

72

317

0.77

7.6

5.9

3%

-17%

-21%

-22%

Derwent London

1,924

2,160

0.56

4.1

2.3

-7%

-11%

-26%

-42%

Helical

191

236

0.47

6.2

2.9

-5%

-7%

-46%

-50%

Picton Property Income

63

343

0.66

5.6

3.6

-5%

-3%

-18%

-28%

Great Portland Estates

361

915

0.55

3.5

1.9

-11%

-10%

-36%

-48%

Land Securities

620

4,615

0.69

6.3

4.4

-5%

-2%

-9%

-10%

Schroder REIT

41

202

0.68

8.0

5.5

-8%

-6%

-10%

0%

UK Commercial Property REIT

64

828

0.79

5.3

4.2

1%

10%

16%

-5%

Balanced Commercial Property Trust

78

547

0.71

6.3

4.5

3%

14%

-11%

9%

Workspace

488

936

0.59

5.4

3.2

-5%

-9%

-3%

-39%

Average

0.66

5.8

3.8

-4%

-4%

-16%

-23%

Regional REIT

21

111

0.32

22.4

7.2

-24%

-31%

-65%

-73%

UK property sector index

1,247

-5%

-4%

-9%

-23%

UK equity market index

4,163

0%

2%

-4%

11%

Source: Company data, Edison Investment Research, Refinitiv prices as at 29 February 2024. Note: *Based on last reported EPRA NTA or NAV per share. **Based on trailing 12-month DPS declared with the exception of RGL, which reflects the Q223 DPS of 1.2p on an annualised basis.

Bond refinancing options

The company’s £50m unsecured Retail Eligible Bond, with a fixed coupon of 4.5%, will mature in August 2024. The bonds are traded on the London Stock Exchange ORB platform with a mid-price at 29 February 2024 of c 88p and will pay a final 2.25p coupon in August.

Ahead of maturity, the options open to RGL include:

Repayment in cash. Existing cash resources (we estimate c £35m at the end of December) and material asset sales would be required, in a relatively short period of time, in an investment market that remains weak. Assuming the retention of a £25m cash float, the £40m of additional cash required, after making good the collateral pools within the secured borrowing facilities, the required asset sales would be a multiple of this. In current market conditions this would be challenging.

Refinancing with similar secured debt. Anecdotally, we believe there is investor appetite for medium- to long-term unsecured debt, to lock in current yields. However, given a similar expectation on the part of borrowers that interest rates will soon begin to decline, they are understandably wary of locking themselves into current yields for other than the short term. With the expectation that rates would be on a downwards trajectory, the range of options open to RGL are reflected in our forecasts as a refinancing of the maturing bonds at 10%. If this is the option chosen by RGL, in current market conditions it is now likely that the coupon would be at least 12% and possibly higher. Each one percentage point increase in the cost of refinancing is equivalent to £0.5m or c 0.1p per share.

An equity raise. We believe that an equity raise has the potential to materially enhance the rating of the shares by removing investor concerns about the company’s ability to refinance the maturing bonds. Listing rules would ensure that any raise, on a scale sufficient to repay the bonds and, perhaps, raise additional equity to provide strategic flexibility would be subject to a shareholder vote. A vote would provide investors with an opportunity to waive pre-emption rights. Although we believe that the new shares would need to be priced at a significant discount to the current share price, where issuance is reserved for existing shareholders, those shareholders that exercise their entitlement to new shares would see no dilution of their share of the company’s earnings, dividends or net assets. We illustrate the potential impact on existing forecasts below.

Convertible bond issue. By effectively combining debt finance with an option to convert this to equity at an agreed price at some future date, a convertible bond would have the potential to lower the immediate interest cost but would do nothing to reduce gearing.

As a REIT, RGL is required to distribute 90% of its property income profits. The FY24e dividend distribution amounts to c £25m. It would be possible to suspend dividend payments and remain a REIT, but the profits would then become taxable at the company level. We would not anticipate this to be a preferred option for management, particularly given its strong commitment to paying a high level of sustainable dividends.

Secured borrowing

Secured debt at end-H123 was £382m. Taking account of H223 asset sales, we expect this will have reduced to c £370m at end-FY23. Including the unsecured bonds this implies total debt of c £420m. The 55.1% end-FY23 net LTV indicates net debt of c £386m and therefore cash of c £34m (H123: £41m). The cost of the secured borrowing is fixed or hedged to maturity at a maximum blended average of 3.4% (3.5% including the bond). The average duration today is c 3.8 years (3.5 years including the bond) with earliest maturity in August 2026.

Each secured facility has distinct covenants, which generally include historical interest cover, projected interest cover, LTV cover and debt service cover. At the interim stage RGL indicated that LTV covenants would be tested at around 60% and that for the debt facility with the highest current LTV (the Royal Bank of Scotland, Bank of Scotland and Barclays facility), LTV of 52.7% at end-H123, it would require a c 11% average decline in the value of properties held as security. Since H1, the amount of drawings from the facility has reduced and asset prices have weakened.

Exhibit 3: Summary of last published debt portfolio as at 30 June 2023 (H123)

Original facility (£m)

Outstanding (£m)

Maturity

Gross LTV

Interest terms

Swaps/caps notional

Swaps/caps blended rate

Royal Bank of Scotland, Bank of Scotland and Barclays

128.0

125.7

Aug-26

52.7%

SONIA + 2.40%

128.0

0.97%

Scottish Widows and Aviva

157.5

157.5

Dec-27

51.4%

3.28% fixed

Scottish Widows

36.0

36.0

Dec-28

43.8%

3.37% fixed

Santander

65.9

62.5

Jun-29

47.2%

LIBOR + 2.20%

65.9

1.39%

Total secured bank loan facilities

387.4

381.7

Unsecured Retail Eligible Bond

50.0

50.0

Aug-24

Unsecured

4.5% fixed

Total facilities

437.4

431.7

Source: Regional REIT

Sensitivity of revised FY24 forecasts to equity raising

Although an equity raise is just one of the options open to RGL and there is no indication from the company that this would be its preferred option, we believe the solution has merit.

We have based our sensitivity analysis on our FY24 forecasts, as if any transaction had occurred on 1 January 2024. The purpose is to indicate the impacts on an annualised basis and should not be read as an alternative FY24 forecast. As a working hypothesis, these forecasts allow for a refinancing of the £50m bond, although the assumed 10% pa cost now appears unrealistic.

The FY24 forecast that we are using is slightly revised from that in our last published note. It updates for the Q423 valuation movement and implied, but not yet published, NAV. Further, to avoid debate about future valuation movements, we now assume a flat development, having previously assumed a like-for-like increase of c 2% (c 3p per share), despite the growing potential for a supportive decline in interest rates. Our FY23 EPRA NTA per share forecast is now 59p (previously 61p) and for FY24 it is 59p (previously 65p). Forecast FY24 net LTV is now 51.7% (previously 46.9%).

Even if RGL would consider an equity raise, there are number of uncertainties, including:

How much it would seek to raise. We would be surprised if the company would consider raising less than the value of the maturing £50m bond, and potentially more. This would accelerate the move towards meeting the medium-term LTV target of 40% and provide more time to execute on asset sales.

The pricing of any issue. We would expect a significant discount to the current share price so as to provide greater certainty of a successful execution.

Whether an issue would be supported by existing shareholders. Shareholders would be entitled to pre-emption rights, although they would have the opportunity (at a general meeting) to waive this right. Those parties underwriting any issuance may request this and it leaves open the opportunity for significant new investors in the company to acquire a stake.

An open offer of new shares would entail dilution of existing shareholders’ interest in the company. Alternatively, if structured as a ‘rights issue’ with all new issuance reserved for existing shareholders, those who do not exercise their right to acquire new shares would also see their interest in the company diluted.

As a result of equity issuance, earnings would increase versus our forecasts due to the saving on bond interest less a slight increase in management fees related to the increase in net assets. Net assets would increase in line with the additional equity, net of costs. However, quoted in per share terms, both earnings and net assets would be lower. Moreover, we would not expect the increase in earnings to match the increase in equity such that the return on equity would be lower post-issuance. As we show below, with the LTV reduced and the bond repaid there would nonetheless be a strong argument for the shares to re-rate and create a net benefit to shareholders.

Sensitivity analysis

Our FY24 forecast assumes £60m of asset sales, a level that is in line with previously expressed company aspirations, and an LTV of c 52%. If combined with an equity raise of £75m (of which £50m to repay the maturing bond), not included in our forecast, LTV would reduce to 40%, in line with RGL’s medium-term target. Exhibit 4 provides a sensitivity of LTV to varying amounts of new equity and asset sales. Asset sales of £100m without an equity raise would be consistent with bond repayment and a 48% LTV. An equity raise of £100m would require £20m of asset sales to achieve a 40% LTV.

Exhibit 4: LTV sensitivity to asset sales and equity issuance

Equity raised (£m)

0

25

50

75

100

125

Asset sales (£m)

20

54%

51%

47%

44%

40%

37%

40

53%

49%

46%

42%

38%

35%

60

51%

48%

44%

40%

36%

33%

75

50%

46%

43%

39%

35%

31%

100

48%

44%

40%

36%

32%

28%

Source: Edison Investment Research

The number of new shares that would need to be issued is dependent not only on the size of any equity issuance, but also on the price or the discount to the current share price. In Exhibit 5 we show the number of new shares that would be issued according to a range of discounts, assuming the forecast £60m of asset sales is complemented by £75m of new equity issuance (of which £50m used to repay the bond).

The higher the discount, the greater the number of new shares issued. The discount and number of shares issued also determines what we call the adjusted share price, post issuance. This is the weighted average of the pre-issue market price and the price at which the new shares are issued. It can be thought of as the expected post-issuance share price before any market movements.

Exhibit 5: Key financial metrics based on alternative share issuance discounts based on current price (as ‘forecast’) and the adjusted post-issuance price

Pre-issue

Discount and post issuance data

£m unless stated otherwise

FY24 forecast

25%

35%

50%

65%

75%

Issue price (p)

15.75

13.65

10.5

7.35

5.25

Current and adjusted share price (p)

21.0

18.5

17.2

14.9

11.9

9.4

Number of shares (m)

515.7

991.9

1065.2

1230.0

1536.1

1944.3

Market cap. (m)

108.3

183.3

183.3

183.3

183.3

183.3

EPRA earnings (£m)*

25.0

27.5

27.5

27.5*

27.5

27.5

EPRA EPS (p)

4.8

2.8

2.6

2.2

1.8

1.4

Dividends paid (£m)

24.8

25.0

25.0

25.0

25.0

25.0

DPS (p)

4.8

2.5

2.4

2.0

1.6

1.3

DPS cover/assumed dividend cover (x)

1.0

1.1

1.1

1.1

1.1

1.1

Dividend yield

22.9%

13.7%

13.7%

13.7%

13.7%

13.7%

EPRA NTA (£m)

302.7

377.3

377.3

377.3

377.3

377.3

EPRA NTA per share (p)

58.7

38.0

35.4

30.7

24.6

19.4

P/NTA (x)

0.36

0.49

0.49

0.49

0.49

0.49

Source: Edison Investment Research. Note: *EPRA earnings post-issuance include £3.4m of bond interest savings versus forecast less slight increase in management charges linked to the increase in net assets. The existing FY24 forecast assumed approximately seven months of the current 4.5% pa bonds until maturity and approximately five months of assumed refinancing at 10% pa.

As shown in Exhibit 5, on a post-issuance basis, and assuming an increase in dividend cover from c 1.0x to c 1.1x, providing retained earnings and cash flow to fund rolling capex, the adjusted share price suggests a dividend yield potential of 13.7% and a P/NTA of 0.54x. However, assuming a subsequent re-rating to the peer average P/NTA of 0.66x would represent a share price that is 29% above the adjusted share price and a dividend yield of c 10% (Exhibit 6).

Exhibit 6: Potential for re-rating

Discount

Pence per share

25%

35%

50%

65%

75%

Post-issue adjusted share price

18.5

17.2

14.9

11.9

9.4

Post issue NTA per share

38.0

35.4

30.7

24.6

19.4

Assumed P/NTA (x)

0.66

0.66

0.66

0.66

0.66

Implied share price

25.1

23.4

20.2

16.2

12.8

Implied share price vs TERP

36%

36%

36%

36%

36%

Yield on implied share price

10%

10%

10%

10%

10%

Source: Edison Investment Research

Dilution for non-participating shareholders

By way of example, assuming £75m of new share issuance at a 50% discount to the market price of 21.0p per share suggests a theoretical post-issuance price of 14.9p. An investor that does not, or cannot, participate fully in an equity raise5 may expect the value of their holding to be diluted by a similar amount, other things being equal. The illustrations in Exhibit 5 also indicate that the earnings attributable to that investor would reduce from the currently forecast 4.8p to 2.2p (with a consequent impact on the DPS to be expected) and EPRA NTA per share would reduce to 30.7p from the currently forecast 58.7p.

  4 In addition to not exercising pre-emption rights, this may include a part of an issuance being offered to new investors and unavailable to existing shareholders.

Turning to Exhibit 6, the re-rating assumption, if it occurs as illustrated, may see the shares trade at a level of 20.2p, well above the theoretical post-issuance price of 14.9p but still slightly below the current share price of 21p. Positively, we estimate that LTV will have been reduced to 40%. Moreover, based on the existing FY24 forecast (adjusted only for the issuance effects) it would support a fully covered dividend (1.1x cover), equivalent to a 10% yield.

Exhibit 7: Financial summary

Year end 31 December (£m)

2020

2021

2022

2023e

2024e

INCOME STATEMENT

Rental & other property income

62.1

65.8

76.3

70.5

68.1

Non-recoverable property costs

(8.8)

(9.9)

(13.7)

(16.4)

(14.3)

Net rental & related income

53.3

55.8

62.6

54.2

53.8

Administrative expenses

(11.3)

(10.6)

(11.4)

(10.8)

(11.0)

EBITDA

42.0

45.2

51.2

43.3

42.7

EPRA cost ratio, excluding direct vacancy costs

19.6%

16.8%

16.2%

16.8%

17.7%

Gain on disposal of investment properties

(1.1)

0.7

(8.6)

(0.4)

0.0

Change in fair value of investment properties

(54.8)

(8.3)

(113.2)

(73.9)

0.0

Change in fair value of right to use asset

(0.2)

(0.0)

(0.1)

(0.1)

(0.1)

Operating Profit

(14.1)

37.6

(70.8)

(31.1)

42.6

Net finance expense

(14.0)

(14.9)

(17.2)

(16.1)

(17.8)

Fair value movement in interest rate derivatives & goodwill impairment

(3.1)

6.0

22.7

5.1

0.0

Profit Before Tax

(31.2)

28.8

(65.2)

(42.1)

24.8

Tax

0.2

0.0

0.0

0.0

0.0

Profit After Tax (FRS 3)

(31.0)

28.8

(65.2)

(42.1)

24.8

Adjusted for the following:

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

55.9

7.6

121.9

74.3

0.0

Other EPRA adjustments

3.2

(6.0)

(22.6)

(5.0)

0.1

EPRA earnings

28.1

30.4

34.1

27.2

25.0

Period end number of shares (m)

431.5

515.7

515.7

515.7

515.7

Fully diluted average number of shares outstanding (m)

431.5

459.7

515.7

515.7

515.7

IFRS EPS - fully diluted (p)

(7.2)

6.3

(12.6)

(8.2)

4.8

EPRA EPS (p)

6.5

6.6

6.6

5.3

4.8

Dividend per share (p)

6.40

6.50

6.60

5.25

4.80

Dividend cover (x)

1.02

1.02

1.00

1.01

1.01

BALANCE SHEET

Non-current assets

749.5

925.2

825.6

741.7

691.9

Investment properties

732.4

906.1

789.5

700.7

651.1

Other non-current assets

17.2

19.0

36.2

41.0

40.9

Current Assets

101.1

85.5

80.4

71.2

69.2

Other current assets

33.7

29.4

30.3

37.9

36.0

Cash and equivalents

67.4

56.1

50.1

33.3

33.2

Current Liabilities

(49.1)

(58.4)

(56.6)

(55.6)

(53.2)

Borrowings

0.0

0.0

0.0

0.0

0.0

Other current liabilities

(49.1)

(58.4)

(56.6)

(55.6)

(53.2)

Non-current liabilities

(380.9)

(449.9)

(446.5)

(425.9)

(376.4)

Borrowings

(310.7)

(383.5)

(385.3)

(364.7)

(315.5)

Other non-current liabilities

(70.3)

(66.4)

(61.3)

(61.2)

(60.8)

Net Assets

420.6

502.4

402.9

331.5

331.5

Derivative interest rate swaps & deferred tax liability

5.0

(1.0)

(23.8)

(28.9)

(28.9)

Goodwill

0.0

0.0

0.0

0.0

0.0

EPRA net tangible assets

425.6

501.4

379.2

302.6

302.7

IFRS NAV per share (p)

97.5

97.4

78.1

64.3

64.3

EPRA NTA per share (p)

98.6

97.2

73.5

58.7

58.7

EPRA NTA total return

-5.8%

5.0%

-17.5%

-12.4%

8.2%

CASH FLOW

Cash (used in)/generated from operations

48.0

56.9

48.5

34.8

42.2

Net finance expense

(12.5)

(13.1)

(15.2)

(15.0)

(16.7)

Tax paid

0.2

0.0

0.0

0.0

0.0

Net cash flow from operations

35.7

43.8

33.3

19.8

25.6

Net investment in investment properties

(0.3)

(98.3)

(5.2)

14.5

49.7

Acquisition of subsidiaries, net of cash acquired

0.0

0.0

0.0

0.0

0.0

Other investing activity

0.1

0.0

0.1

0.0

0.0

Net cash flow from investing activities

(0.2)

(98.2)

(5.1)

14.5

49.7

Equity dividends paid

(26.7)

(27.8)

(34.0)

(29.4)

(24.8)

Debt drawn/(repaid)

22.2

73.8

14.3

(10.1)

(50.0)

Net equity issuance

0.0

(0.1)

0.0

0.0

0.0

Other financing activity

(0.8)

(2.7)

(14.5)

(11.7)

(0.6)

Net cash flow from financing activity

(5.3)

43.2

(34.2)

(51.1)

(75.4)

Net Cash Flow

30.1

(11.2)

(6.0)

(16.8)

(0.2)

Opening cash

37.2

67.4

56.1

50.1

33.3

Closing cash

67.4

56.1

50.1

33.3

33.2

Balance sheet debt

(360.1)

(433.1)

(435.0)

(414.6)

(365.5)

Unamortised debt costs

(6.0)

(6.9)

(5.8)

(5.1)

(4.2)

Closing net debt

(298.8)

(383.8)

(390.6)

(386.3)

(336.5)

LTV

40.8%

42.4%

49.5%

55.1%

51.7%

Source: Regional REIT historical data, Edison Investment Research forecasts


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 2024 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.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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 2024 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.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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