Last close As at 05/08/2026
GBP0.98
▲ 2.00 (2.08%)
Market capitalisation
GBP159m
Research: Real Estate
Regional REIT (RGL) has published a trading update for the three months ended 31 March 2021 (Q121), including a 7% increase in the quarterly rate of DPS backed by continuing strong rent collection from its diversified portfolio of attractively yielding regional property assets. With the lockdown restrictions relaxing, RGL says it is seeing increasing engagement with potential occupiers.
Regional REIT |
Quarterly DPS increased by 7% |
Trading update and DPS |
Real estate |
20 May 2021 |
Share price performance
Business description
Next events
Analyst
Regional REIT is a research client of Edison Investment Research Limited |
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Regional REIT (RGL) has published a trading update for the three months ended 31 March 2021 (Q121), including a 7% increase in the quarterly rate of DPS backed by continuing strong rent collection from its diversified portfolio of attractively yielding regional property assets. With the lockdown restrictions relaxing, RGL says it is seeing increasing engagement with potential occupiers.
Year end |
Net rental |
EPRA |
EPRA |
EPRA NTA**/ |
DPS |
P/NTA |
Yield |
12/19 |
55.0 |
31.0 |
7.8 |
112.6 |
8.25 |
0.78 |
9.4 |
12/20 |
53.3 |
27.9 |
6.5 |
98.6 |
6.40 |
0.89 |
7.3 |
12/21e |
53.6 |
28.9 |
6.7 |
99.1 |
6.60 |
0.88 |
7.5 |
12/22e |
55.3 |
30.4 |
7.0 |
99.4 |
6.90 |
0.88 |
7.9 |
Note: *EPRA earnings exclude revaluation movements, gains/losses on disposal and other non-recurring items. EPRA EPS is fully diluted. **EPRA net tangible assets per share. EPS and NTA are fully diluted.
DPS increase supported by strong rent collection
RGL has declared a Q121 DPS of 1.6p compared with 1.5p in Q420. Our forecast assumes three quarterly payments of 1.6p and an increased Q4 DPS of 1.8p (total for the year 6.6p versus 6.4p), consistent with the company’s plans to revert to distributions in line with its normal pattern. Rent collection remains strong and as at 14 May it had collected 96.1% of Q121 rents (comprising 93.8% received, monthly rent of 1.2% and agreed collection plans of 1.1%), which compares favourably with the 89.6% collected at the same point in 2020. Retention rates remain above 70% and completed lease renewals achieved an average uplift in rents of 6.4%. New lettings will also add £0.9m pa to rent roll when fully occupied, although gross rent roll of £62.8m and EPRA occupancy of 87.8% were slightly below end-FY20 (£64.3m and 89.4% respectively). The end-Q121 portfolio value of £734.7m (end-FY20: £732.4m) is adjusted for capex and one small disposal only, with the next revaluation due at 30 June 2021. Our forecasts are unchanged.
Regional office opportunity
RGL believes strongly in the future for offices in the commercial market universe, especially good-quality regional assets with affordable rents, the focus of investment as RGL becomes a pure-play regional office REIT. The existing office portfolio contains significant reversionary income potential (c £12m at end-FY20) and RGL is seeking to take full advantage of a strong pipeline of further regional office investment opportunities and what it believes to be a mispricing of quality assets, brought into sharper contrast by strong investor enthusiasm for the industrial sector. Not reflected in our forecasts, a sale of the industrial assets above book value is possible, with the proceeds recycled into offices at an increased yield.
Valuation: High yield and fully covered dividend
RGL continues to offer one of the highest yields in the UK REIT sector, with dividends fully covered by EPRA earnings. Despite a rise in the share price the FY21e yield is 7.5%, significantly above close peers, with an 11% discount to FY20 NTA.
Exhibit 1: Financial summary
Year end 31 December |
£m |
2016 |
2017 |
2018 |
2019 |
2020 |
2021e |
2022e |
2023e |
|
INCOME STATEMENT |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
Rental & other income |
43.0 |
52.3 |
62.1 |
64.4 |
62.1 |
62.6 |
64.3 |
65.0 |
||
Non-recoverable property costs |
0.0 |
(6.5) |
(7.7) |
(9.4) |
(8.8) |
(9.0) |
(9.0) |
(9.0) |
||
Net rental & related income |
|
|
43.0 |
45.8 |
54.4 |
55.0 |
53.3 |
53.6 |
55.3 |
56.0 |
Administrative expenses (excluding performance fees) |
(8.0) |
(7.8) |
(10.5) |
(10.9) |
(11.3) |
(10.8) |
(10.8) |
(10.8) |
||
Performance fees |
(0.2) |
(1.6) |
(7.0) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
EBITDA |
|
|
34.8 |
36.4 |
36.8 |
44.1 |
42.0 |
42.8 |
44.5 |
45.2 |
EPRA cost ratio |
N/A |
29.7% |
40.1% |
31.6% |
32.4% |
31.6% |
30.8% |
30.5% |
||
EPRA cost ratio excluding performance fee |
N/A |
26.6% |
28.6% |
31.6% |
32.4% |
31.6% |
30.8% |
30.5% |
||
Gain on disposal of investment properties |
0.5 |
1.2 |
23.1 |
1.7 |
(1.1) |
0.0 |
0.0 |
0.0 |
||
Change in fair value of investment properties |
(6.8) |
5.9 |
23.9 |
(3.5) |
(54.8) |
0.0 |
0.0 |
0.0 |
||
Change in fair value of right to use asset |
(0.2) |
(0.2) |
(0.2) |
(0.2) |
(0.2) |
|||||
Operating Profit (before amort. and except.) |
|
|
28.5 |
43.5 |
83.8 |
42.0 |
(14.1) |
42.6 |
44.3 |
45.0 |
Net finance expense |
(8.6) |
(14.5) |
(15.7) |
(13.7) |
(14.0) |
(13.7) |
(13.9) |
(13.9) |
||
Net movement in the fair value of derivative financial investments and impairment of goodwill |
(1.7) |
(0.3) |
(0.1) |
(2.0) |
(3.1) |
0.0 |
0.0 |
0.0 |
||
Profit Before Tax |
|
|
18.3 |
28.7 |
67.9 |
26.3 |
(31.2) |
28.9 |
30.4 |
31.1 |
Tax |
0.0 |
(1.6) |
(0.6) |
0.3 |
0.2 |
0.0 |
0.0 |
0.0 |
||
Profit After Tax (FRS 3) |
|
|
18.3 |
27.1 |
67.4 |
26.5 |
(31.0) |
28.9 |
30.4 |
31.1 |
Adjusted for the following: |
||||||||||
Net gain/(loss) on revaluation/disposal of investment properties |
6.2 |
(7.1) |
(47.0) |
1.9 |
55.9 |
0.0 |
0.0 |
0.0 |
||
Other EPRA adjustments |
(3.4) |
4.1 |
0.5 |
2.6 |
3.0 |
0.0 |
0.0 |
0.0 |
||
EPRA earnings |
|
|
21.1 |
24.0 |
20.9 |
31.0 |
27.9 |
28.9 |
30.4 |
31.1 |
Performance fees |
0.2 |
1.6 |
7.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Adjusted earnings |
|
|
21.3 |
25.6 |
27.9 |
31.0 |
27.9 |
28.9 |
30.4 |
31.1 |
Period end number of shares (m) |
274.2 |
372.8 |
372.8 |
431.5 |
431.5 |
431.5 |
431.5 |
431.5 |
||
Fully diluted average number of shares outstanding (m) |
274.3 |
297.7 |
372.8 |
398.9 |
431.5 |
431.5 |
431.5 |
431.5 |
||
IFRS EPS - fully diluted (p) |
|
|
4.9 |
9.1 |
18.1 |
6.6 |
(7.2) |
6.7 |
7.0 |
7.2 |
EPRA EPS, fully diluted (p) |
|
|
7.7 |
8.1 |
5.6 |
7.8 |
6.5 |
6.7 |
7.0 |
7.2 |
Adjusted EPS (p) |
|
|
7.8 |
8.6 |
7.5 |
7.8 |
6.5 |
6.7 |
7.0 |
7.2 |
Dividend per share (p) |
|
|
7.65 |
7.85 |
8.05 |
8.25 |
6.40 |
6.60 |
6.90 |
7.20 |
Dividend cover |
101.6% |
109.7% |
93.1% |
94.2% |
101.0% |
101.6% |
102.1% |
100.1% |
||
BALANCE SHEET |
||||||||||
Non-current assets |
|
|
506.4 |
740.9 |
720.9 |
806.0 |
749.5 |
755.4 |
761.2 |
767.0 |
Investment properties |
502.4 |
737.3 |
718.4 |
787.9 |
732.4 |
738.4 |
744.4 |
750.4 |
||
Other non-current assets |
4.0 |
3.6 |
2.5 |
18.1 |
17.2 |
17.0 |
16.8 |
16.6 |
||
Current Assets |
|
|
27.6 |
66.6 |
127.0 |
69.4 |
101.1 |
90.9 |
87.4 |
81.6 |
Other current assets |
11.4 |
21.9 |
22.2 |
32.2 |
33.7 |
26.3 |
24.5 |
24.7 |
||
Cash and equivalents |
16.2 |
44.6 |
104.8 |
37.2 |
67.4 |
64.6 |
63.0 |
56.8 |
||
Current Liabilities |
|
|
(23.3) |
(42.6) |
(83.7) |
(36.2) |
(49.1) |
(43.4) |
(44.9) |
(45.3) |
Borrowings |
0.0 |
(0.4) |
(0.4) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other current liabilities |
(23.3) |
(42.2) |
(83.3) |
(36.2) |
(49.1) |
(43.4) |
(44.9) |
(45.3) |
||
Non-current liabilities |
|
|
(219.0) |
(372.0) |
(334.7) |
(355.5) |
(380.9) |
(380.5) |
(380.1) |
(379.6) |
Borrowings |
(217.4) |
(371.2) |
(285.2) |
(287.9) |
(310.7) |
(311.3) |
(311.9) |
(312.5) |
||
Other non-current liabilities |
(1.5) |
(0.8) |
(49.5) |
(67.6) |
(70.3) |
(69.2) |
(68.2) |
(67.1) |
||
Net Assets |
|
|
291.7 |
392.9 |
429.5 |
483.7 |
420.6 |
422.3 |
423.6 |
423.6 |
Derivative interest rate swaps & deferred tax liability |
1.5 |
2.8 |
1.0 |
2.6 |
5.0 |
5.2 |
5.2 |
5.2 |
||
EPRA net assets |
|
|
293.2 |
395.7 |
430.5 |
486.3 |
425.6 |
427.5 |
428.8 |
428.8 |
IFRS NAV per share (p) |
106.4 |
105.4 |
115.2 |
112.1 |
97.5 |
97.9 |
98.2 |
98.2 |
||
Fully diluted EPRA NTA per share (p) |
106.1 |
105.4 |
115.2 |
112.6 |
98.6 |
99.1 |
99.4 |
99.4 |
||
CASH FLOW |
||||||||||
Cash (used in)/generated from operations |
|
|
31.4 |
40.3 |
38.8 |
26.0 |
48.0 |
44.6 |
47.8 |
45.2 |
Net finance expense |
(6.6) |
(9.2) |
(11.9) |
(12.2) |
(12.5) |
(12.8) |
(12.9) |
(12.9) |
||
Tax paid |
(1.7) |
(0.2) |
(1.5) |
(0.8) |
0.2 |
0.0 |
0.0 |
0.0 |
||
Net cash flow from operations |
|
|
23.1 |
30.8 |
25.4 |
13.0 |
35.7 |
31.8 |
34.9 |
32.3 |
Net investment in investment properties |
(99.3) |
(8.3) |
100.6 |
(25.6) |
(0.3) |
(6.0) |
(6.0) |
(6.0) |
||
Acquisition of subsidiaries, net of cash acquired |
(5.6) |
(51.9) |
(32.6) |
(43.9) |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other investing activity |
0.1 |
0.0 |
0.2 |
0.2 |
0.1 |
0.0 |
0.0 |
0.0 |
||
Net cash flow from investing activities |
|
|
(104.8) |
(60.1) |
68.2 |
(69.4) |
(0.2) |
(6.0) |
(6.0) |
(6.0) |
Equity dividends paid |
(15.7) |
(23.3) |
(29.4) |
(32.5) |
(26.7) |
(27.2) |
(29.1) |
(31.1) |
||
Debt drawn/(repaid) - including bonds and ZDP |
91.4 |
13.9 |
(50.5) |
3.5 |
22.2 |
0.0 |
0.0 |
0.0 |
||
Net equity issuance |
0.0 |
71.3 |
(1.2) |
60.5 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other financing activity |
(1.7) |
(4.2) |
47.7 |
(42.7) |
(0.8) |
(1.4) |
(1.4) |
(1.4) |
||
Net cash flow from financing activity |
|
|
74.0 |
57.7 |
(33.4) |
(11.2) |
(5.3) |
(28.6) |
(30.5) |
(32.5) |
Net Cash Flow |
|
|
(7.8) |
28.4 |
60.2 |
(67.6) |
30.1 |
(2.8) |
(1.6) |
(6.2) |
Opening cash |
24.0 |
16.2 |
44.6 |
104.8 |
37.2 |
67.4 |
64.6 |
63.0 |
||
Closing cash |
|
|
16.2 |
44.6 |
104.8 |
37.2 |
67.4 |
64.6 |
63.0 |
56.8 |
Balance sheet debt |
(217.4) |
(371.6) |
(374.6) |
(337.1) |
(360.1) |
(360.9) |
(361.6) |
(362.4) |
||
Unamortised debt costs |
(2.6) |
(4.8) |
(5.8) |
(6.9) |
(6.0) |
(5.3) |
(4.5) |
(3.8) |
||
Closing net debt |
|
|
(203.9) |
(331.8) |
(275.5) |
(306.8) |
(298.8) |
(301.6) |
(303.2) |
(309.3) |
LTV |
40.6% |
45.0% |
38.3% |
38.9% |
40.8% |
40.8% |
40.7% |
41.2% |
||
Source: Regional REIT historical data, Edison Investment Research forecasts
|
|
Research: Real Estate
Despite the macro headwinds, Deutsche Grundstücksauktionen (DGA) reported record-high auction sales in FY20 of €142.7m (significantly above the €100.1m in FY19) and commission income of €12.7m (versus €10.1m in FY19). DGA continued its strong performance in Q121, reporting turnover of €37.9m – the second-highest quarterly result in its history (only behind Q320), with €47.8m group sales. The group benefits from agreements with government institutions, which offer high-volume properties for sale and fueled a 51.3% y-o-y increase in average sale price across the group to €96.6k. On the other hand, due to a regressive commission scale, the average commission rate declined from 10.1% to 8.9% in FY20. Management expects a slight decline in transaction volume in FY21, as the FY20 figure was inflated by significant one-off transactions.