Last close As at 05/08/2026
GBP0.98
▲ 2.00 (2.08%)
Market capitalisation
GBP159m
Research: Real Estate
We have previously commented on the fact that regional commercial property markets, especially for industrial and office properties, have remained firm despite Brexit uncertainties. Steady occupier demand, combined with a general tightness of supply, is supporting rental growth in many areas. Against this background, Regional REIT (RGL) continues to see a wide range of acquisition and asset enhancement opportunities, which meet its investment criteria, giving rise to a strong pipeline of capital deployment opportunities. RGL has conditionally agreed the acquisition of two portfolios and is seeking to raise up to £100m gross from the issue of new shares.
Regional REIT |
Significant proposed growth and funding |
Acquisition and capital raising |
Real estate |
6 December 2017 |
Share price performance
Business description
Next events
Analysts
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We have previously commented on the fact that regional commercial property markets, especially for industrial and office properties, have remained firm despite Brexit uncertainties. Steady occupier demand, combined with a general tightness of supply, is supporting rental growth in many areas. Against this background, Regional REIT (RGL) continues to see a wide range of acquisition and asset enhancement opportunities, which meet its investment criteria, giving rise to a strong pipeline of capital deployment opportunities. RGL has conditionally agreed the acquisition of two portfolios and is seeking to raise up to £100m gross from the issue of new shares.
Year end |
Net rental |
EPRA |
EPRA NAV/ |
DPS |
P/EPRA |
Yield |
12/15** |
4.6 |
0.9 |
107.8 |
1.00 |
0.96 |
1.0 |
12/16 |
38.1 |
7.8 |
106.9 |
7.65 |
0.96 |
7.4 |
Note: *EPRA EPS is adjusted to exclude exceptional expenses and estimated performance fees. **56-day trading period only.
Significant acquisition pipeline
In its recent Q3 trading update, RGL reiterated that it was continuing to explore specific acquisition opportunities to further grow the business and enhance income and earnings. It has now reached conditional agreement to acquire two real estate portfolios representing an aggregate investment of £93.4m and with an expected net initial yield of 8.6%. This is a significant potential increase in its existing portfolio, valued at c £651m at 30 September 2017. To finance its plans it has proposed a capital increase seeking to raise gross proceeds of up to £100m (£97m net of expenses). The capital increase proposes the issue of up to approximately 99m new shares, a c 32% increase on the existing number of shares. It is conditional on, among other things, certain resolutions being passed at an EGM, which is expected to take place on 19 December 2017. The new shares are to be issued at an offer price of 101p, slightly below the closing price on 4 December of 103.5p and the fully diluted EPRA NAV per share of 107.3 as at 30 June 2017.
Raising capital for funding
It is proposed that c £50 will be raised from the issue of new ordinary shares in a firm placing and up to a further £50m by way of a placing, open offer and offer for subscription. The firm placing has already been carried out by way of an accelerated book building and, subject to certain resolutions being passed at the extraordinary EGM to be held on 19 December 2017, will see the issue of c 49.5m new shares. The placing, open offer and offer for subscription will see up to a further 49.5m shares issued and shareholders qualifying for the open offer will be able to subscribe for new shares on the basis of one new ordinary share for every eight existing shares held. Full details can be found in the prospectus available on the company website, www.regionalreit.com. Our forecasts are suspended pending completion of the transaction.
Summary of the acquisitions and use of proceeds
RGL says that it continues to see a wide range of acquisition and development opportunities that meet its investment criteria, giving rise to a strong pipeline of capital deployment opportunities. These include the following:
■
Up to £45.8m (including acquisition costs) to finance the agreed acquisitions, which RGL describes as the First New Portfolio Acquisition. This a portfolio of three office properties located in Woking, Cheshunt, and Edinburgh with 25 lettable units and 18 individual tenants. The properties are 88% let (by area) on a weighted average lease term (WAULT) of 6.4 years with 3.3 years to first break. The contracted rent roll is £3.6m and the portfolio has been valued at £43.5m, reflecting a yield of 8%.
■
Up to £4.9m to finance a pipeline investment, which is in advanced negotiations and which RGL expects to complete in March 2018. This is an office property in Portsmouth which, combined with the First New Portfolio Acquisition, would result in a portfolio of 26 lettable units and 19 individual tenants, occupied 90% by area. RGL estimates the combined rent roll at £4.0m, reflecting a yield of 8.1% on a WAULT of 6.6 years (3.4 years to first break).
■
Up to £47.6m to finance the Second New Portfolio Acquisition comprising 17 office properties with 210 lettable units and 136 individual tenants. The properties are 75% let (by area) with a WAULT of 3.1 years or 2.1 years to first break. The contracted rent roll is £4.2m and the portfolio has been valued at £44.8m, reflecting a yield of 9.2%.
The potential acquisitions listed above are significant in terms of the current portfolio, which has already grown strongly since IPO. As at 30 September 2017 the portfolio comprised 151 properties, with 1,113 units and 838 tenants, an aggregate value of c £651m and a contracted rental income of c £55.9m pa.
In addition, approximately £4.0m of the capital raise proceeds will be absorbed by the costs of the previously announced refinancing of certain of the group’s debt facilities. With its Q3 trading update RGL confirmed that discussions were at an advanced stage on replacing five of its existing debt facilities, representing c £164m of the c £296m outstanding at H117 with a new 10-year facility, and has reached agreement, subject to documentation, to refinance another. It said that the refinancing is expected to extend average debt maturity to 6.3 years from 2.0 years and it will also simplify the debt structure. The total cost of the refinanced debt is expected to be 3.3-3.4% fixed.
RGL intends to put in place a £19.4m debt facility as soon as possible following completion of the First New Portfolio Acquisition, of which £17.4m will be in respect of the assets acquired and £2.0m to part-finance the pipeline investment. Terms have been agreed at a cost of Libor plus 2.0%.
A second new debt facility is planned on completion of the Second New Portfolio Acquisition, for which a fixed cost of 2.15% has been agreed.
Exhibit 1: Historical financial summary
Year end 31 December |
£'000s |
2015 |
2016 |
H117 |
|
PROFIT & LOSS |
IFRS |
IFRS |
IFRS |
||
Gross rental income |
5,361 |
42,994 |
22,964 |
||
Non-recoverable property costs |
(754) |
(4,866) |
(3,480) |
||
Revenue |
|
|
4,608 |
38,128 |
19,484 |
Administrative expenses (excluding performance fees) |
(1,353) |
(7,968) |
(4,261) |
||
EBITDA |
|
|
3,255 |
30,160 |
15,223 |
Gain on disposal of investment properties |
87 |
518 |
(41) |
||
Change in fair value of investment properties |
23,784 |
(6,751) |
7,504 |
||
Operating profit before financing costs |
|
|
27,126 |
23,927 |
22,686 |
Performance fees |
0 |
(249) |
(905) |
||
Exceptional items |
(5,296) |
0 |
0 |
||
Finance income |
177 |
193 |
107 |
||
Finance expense |
(997) |
(8,822) |
(5,872) |
||
Net movement in the fair value of derivative financial investments and impairment of goodwill |
115 |
(1,654) |
168 |
||
Profit Before Tax |
|
|
21,124 |
13,395 |
16,184 |
Tax |
0 |
23 |
(11) |
||
Profit After Tax (FRS 3) |
|
|
21,124 |
13,418 |
16,173 |
Adjusted for the following: |
|||||
Performance fees |
0 |
249 |
905 |
||
Exceptional items |
5,296 |
0 |
0 |
||
Net gain/(loss) on revaluation |
(23,784) |
6,751 |
(22,839) |
||
Net movement in the fair value of derivative financial investments |
(180) |
865 |
(447) |
||
Gain on disposal of investment properties |
(86) |
(518) |
41 |
||
Profit before Tax (norm) |
|
|
2,371 |
20,765 |
(-6,167) |
Period end number of shares (m) |
274.2 |
274.2 |
300.5 |
||
Average Number of Shares Outstanding (m) |
274.2 |
274.4 |
288.5 |
||
Fully diluted average number of shares outstanding (m) |
274.2 |
274.4 |
300.5 |
||
IFRS EPS - fully diluted (p) |
|
|
7.7 |
4.9 |
5.6 |
EPRA EPS - adjusted (p) |
|
|
0.9 |
7.8 |
3.2 |
EPRA EPS |
|
|
(1.1) |
7.7 |
2.9 |
Dividend per share (p) - declared basis |
|
|
1.00 |
7.65 |
3.60 |
Dividend cover |
N/A |
102% |
88% |
||
BALANCE SHEET |
|||||
Non-current assets |
|
|
407,492 |
506,401 |
643,872 |
Investment properties |
403,703 |
502,425 |
640,405 |
||
Other non-current assets |
3,790 |
3,976 |
3,467 |
||
Current Assets |
|
|
35,803 |
27,574 |
46,871 |
Trade and other receivables |
11,848 |
11,375 |
14,642 |
||
Cash and equivalents |
23,954 |
16,199 |
32,229 |
||
Current Liabilities |
|
|
(21,485) |
(23,285) |
(36,271) |
Trade and other payables |
(12,576) |
(14,601) |
(24,529) |
||
Bank and loan borrowings - current |
(200) |
0 |
(400) |
||
Other current liabilities |
(8,709) |
(8,684) |
(11,342) |
||
Non-current liabilities |
|
|
(126,469) |
(218,955) |
(332,474) |
Bank borrowings |
(126,469) |
(217,442) |
(295,429) |
||
Zero dividend preference shares (ZDP) |
0 |
0 |
(36,010) |
||
Other non-current liabilities |
0 |
(1,513) |
(1,035) |
||
Net Assets |
|
|
295,341 |
291,735 |
321,998 |
Derivative interest rate swaps |
416 |
1,513 |
963 |
||
EPRA net assets |
|
|
295,757 |
293,248 |
322,961 |
IFRS NAV per share (p) |
107.7 |
106.4 |
107.1 |
||
Fully diluted EPRA NAV per share (p) |
107.8 |
106.9 |
107.3 |
||
LTV |
-5.9% |
40.6% |
47.3% |
||
CASH FLOW |
|||||
Cash (used in)/generated from operations |
|
|
(2,232) |
31,434 |
18,921 |
Net finance expense |
(424) |
(6,626) |
(4,106) |
||
Tax paid |
0 |
(1,715) |
51 |
||
Net cash flow from operations |
|
|
(2,656) |
23,093 |
14,866 |
Net investment in investment properties |
1,157 |
(99,286) |
(900) |
||
Acquisition of subsidiaries, net of cash acquired |
26,659 |
(5,573) |
209 |
||
Other investing activity |
13 |
60 |
8 |
||
Net cash flow from investing activities |
|
|
27,828 |
(104,799) |
(683) |
Equity dividends paid |
0 |
(15,723) |
(7,014) |
||
Bank debt drawn/(repaid) |
(1,217) |
91,417 |
9,265 |
||
Other financing activity |
0 |
(1,744) |
(404) |
||
Net cash flow from financing activity |
|
|
(1,217) |
73,950 |
1,847 |
Net Cash Flow |
|
|
23,955 |
(7,756) |
16,030 |
Opening cash |
0 |
23,955 |
16,199 |
||
Closing cash |
|
|
23,955 |
16,199 |
32,229 |
Closing debt |
(126,669) |
(217,442) |
(331,839) |
||
Closing net debt |
|
|
(102,714) |
(201,243) |
(299,610) |
Source: Company accounts, Edison Investment Research
|
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Windar Photonics has received a follow-on order from one of its Chinese distributors for 300 WindEYE LiDAR systems. The first 50 are for delivery this month, the remaining 250 during H118. Management believes that there is potential for significant follow-on orders in H218. The financial details have not been disclosed, but we calculate that this order represents two to three times as many LiDAR systems as were shipped in either FY16 or H117. We will update our estimates shortly.