RGL Regional Reit Limited

TIDMRGL

RNS Number : 3977H

Regional REIT Limited

15 November 2018

15 November 2018

REGIONAL REIT Limited

Q3 2018 Trading Update, Outlook Statement and Dividend Announcement

Regional REIT Limited (LSE: RGL) ("Regional REIT", "the Group" or "the Company"), the UK regional office and industrial property focused REIT, today announces its trading update for the period from 1 July to 14 November 2018, and its dividend declaration for the third quarter of 2018.

Stephen Inglis, Chief Executive Officer of London & Scottish Investments Limited, commented: "We are extremely pleased with the REIT's continued progress in 2018. Having undertaken the majority of our trading in the first three quarters, we benefitted from substantial gains over valuation.

As we recycle the remaining sale proceeds, we are able to take advantage of an investment market that has slightly softened ahead of the outcome of the Brexit negotiations, creating a buyer's market. Contrastingly we continue to see little change in occupational demand for our assets and we are undertaking a number of lettings across the country at good rental levels.

These developments once again demonstrate our strategy of refreshing the portfolio to ensure robust and diverse income streams, with which to pay and enhance dividend returns to investors.

Q3 2018 Trading Update

The Group has continued to pursue its strategy of providing investors with an attractive return on a sustained and consistent basis from investing and asset managing, in predominantly, offices and light industrial property in the main regional centres of the UK outside of the M25 motorway.

From 1 January 2018 to date, the Group has exchanged on 54 leases to new tenants, including 21 since 30 June 2018, totalling 195,005 sq. ft. When fully occupied these will provide approximately GBP2.4m pa of headline rental income. In addition, the Group has completed a number of lease re-gearings in the quarter. The acquisition of replacement tenants and existing tenants, who continue to hold over in the properties for which the leases have come up for renewal, has resulted in c. 84% of headline rent being retained and c. 89% of the units with lease renewals remaining occupied.

Capital expenditure to 30 September 2018 was GBP5.7m gross (GBP5.4m net of recoveries and dilapidations), consistent with our targeted asset quality enhancement strategy.

Portfolio as at 30 September 2018:

-- 153 properties, 1,246 units and 915 tenants, amounting to c. GBP723.2m of gross property assets; with a contracted rent roll of c. GBP59.4m pa.

-- Offices (by value) were 75.0% of the portfolio (31 December 2017: 67.3%), industrial sites 16.2% (31 December 2017: 23.3%), retail 7.4% (31 December 2017 8.1%), and Other 1.4% (31 December 2017:1.3%); England & Wales represented 82.4% (31 December 2017: 77.6%) of the portfolio with the remainder in Scotland.

-- Occupancy (by value) increased to 85.8%, versus 85.5% at 30 June 2018; 30 September 2018 like-for-like (versus 30 September 2017) occupancy fell slightly to 83.7% (84.3%).

   --     Average lot size c. GBP4.7m (31 December 2017: GBP4.5m). 

-- Net loan-to-value ratio c. 37.1% (31 December 2017: 45.0%). Gross borrowings GBP360.3m; cash and cash equivalent balances GBP92.0m. Cost of debt (including hedging) of 3.9% pa (31 December 2017: 3.7% pa), and 3.4% excluding the ZDP shares (31 December 2017: 3.5%). The ZDP shares are scheduled for repayment on the 9 January 2019.

Summary of activity in the quarter to 30 September 2018:

The Group undertook several asset management projects, generating new lettings and maintaining and improving income through lease renewals and re-gears:

-- 800 Aztec West, Bristol - following the completion of a comprehensive refurbishment of all floors, the first floor was let to Edvance SAS (31,549 sq. ft.) for 10 years with an option to break in 2020 for 16,709 sq. ft. of the space, and an option to break in 2024 for the remaining 14,840 sq. ft. The combined annual rent is GBP678,304 (c. GBP22psf). We are seeing an encouraging level of tenant enquiries for the outstanding 41,743 sq. ft. of vacant space.

-- Century Way, Thorpe Park, Leeds - following the expiry of the lease to W S Atkins (Services) Ltd, the first floor (10,748 sq. ft.) was let to Sodexo Ltd for 5 years, with an option to break on the third anniversary. The company also took an additional 47 car parking spaces, resulting in a combined headline rental income of GBP227,996pa. The rent of c. GBP17psf is a 5.9% increase on the previous level achieved.

-- Miller Court, Tewkesbury - a new 10-year lease was agreed with Weird Fish Ltd with a 5-year break at a headline rent of GBP140,980pa for 10,070 sq. ft. (c. GBP14psf). The lease provides a 5-month rent free period from the start date of the lease.

-- Manor Road, Erith - letting of 9,730 sq. ft of space to Aquaflow Drainage Services Ltd on a 10-year lease commencing September 2018, subject to a break option at the fifth anniversary and no rent free at a headline rent of GBP65,000pa. (c. GBP7psf).

-- Vantage Point, Edinburgh - regear of leases to Adobe Systems Europe Ltd for first and second floor totalling 21,741 sq. ft. The leases provide a combined rental income of GBP347,147pa, (averaging c. GBP16psf) with varying lease terms. The lease for the first floor (8,413 sq. ft.) is for a 5-year term, subject to a break option in 2019. The lease for 13,328 sq. ft. of space on the second floor is let on a 10-year lease with the option to break at the fifth anniversary.

-- Delta 1200, Delta Business Park, Swindon - regear of existing lease to CMS Supatrak Ltd complete for 4,919 sq. ft. for a further 5-year term, subject to a break option on the first anniversary, achieving a 19.2% uplift in the headline rent to GBP76,245pa (c. GBP15psf).

Acquisitions

On 17 August 2018, Regional REIT completed the acquisition of a portfolio of eight assets for a consideration of GBP31.4m. The portfolio consists of offices in eight locations: Hull, High Wycombe, Stockton-on-Tees, Ipswich, Clevedon, Wakefield, Deeside and Lincoln. The assets total circa 275,000 sq. ft., let to 24 tenants. The assets are expected to provide a headline rental income of approximately GBP2.81m pa, which equates to a net initial yield of 8.66%.

Sales

-- The Point, Glasgow - following completion of asset management initiatives, the Group completed the sale of the property for GBP14.1m in July (30 June 2018 valuation GBP14.1m), benefitting from a strong investment market at a premium to December 2017 valuation of 5.6%.

-- Arena Point, Leeds - disposal of development site to Unite Students for GBP12.2m (30 June 2018 valuation: GBP3.9m) following successful planning application. Regional REIT retains the adjacent 19 storey Arena Point office building valued at GBP8.6m 30 June 2018.

-- Wardpark Industrial Estate, Cumbernauld - sold in August 2018 for GBP26.4m. (30 June 2018 valuation: GBP24.5m). The sale price was 21.1% above the December 2017 year end valuation.

-- Birchwood Park, Warrington - sold in August 2018 for GBP6.1m (30 June 2018 valuation: GBP6.1m).

-- Imperial Business Park, Gravesend - sold in August 2018 for GBP3.1m (30 June 2018 valuation: GBP3.1m), as part of the Bluebell portfolio.

-- Turnford Place, Cheshunt - sold in September 2018 for GBP17.25m (30 June 2018 valuation: GBP16.3m) reflects a net initial yield of 5.8%. The 59,176 sq. ft. modern office block site was originally acquired by Regional REIT on 27 December 2017 as part of the Newton Portfolio. At that time, the office development was valued at GBP14.3m. The sale price marks an uplift of 20.6% against the 31 December 2017 valuation and a 6.2% uplift over 30 June 2018 valuation.

Sales from 30 September 2018 to date:

   --     Thames Industrial Estate, Manchester - sold in October 2018 for GBP0.6m 
   --     Grecian Crescent, Bolton - sold in October 2018 for GBP1.2m 
   --     Maybrook Industrial Estate, Walsall - sold in November for GBP7.7m 

Outlook

The outlook for the Group remains positive. We continue to reinvest the proceeds from the disposals earlier in the year and expect this to be concluded in the coming months. As announced in September 2018, the Group has repaid GBP50m of the GBP65m 5% ICG Longbow Ltd. loan facility, and remains on course to settle the balance by the end of November 2018 using disposals proceeds or through a refinancing. This is expected to result in a reduced Group weighted average cost of debt and an increased weighted average debt term.

Although the wider operating environment is uncertain, our confidence is underpinned by our deliberately diversified regional, tenant and sector portfolio, coupled with our financial position. These strengths will allow us to adjust quickly to evolving conditions and continue to deliver good returns for shareholders.

Q3 2018 Dividend Declaration

The Company will pay a dividend of 1.85 pence per share ("pps") for the period 1 July 2018 to 30 September 2018, an increase of c. 3% (1 July 2017 to 30 September 2017: 1.80pps). The dividend payment will be made on 21 December 2018 to shareholders on the register as at 23 November 2018. The ex-dividend date will be 22 November 2018.

The payment of dividends will remain subject to market conditions, the Company's performance, its financial position and the business outlook.

Forthcoming Events

   21 February 2019          Q4 2018 Dividend and Portfolio Valuation 
   28 March 2019              Full year 2018 Preliminary Results Announcement 
   23 May 2019                  May 2019 Trading Update and Outlook Announcement 

Q1 2019 Dividend Declaration Announcement

Annual General Meeting

Note: All dates are provisional and subject to change

-S -

Enquiries:

 
Regional REIT Limited 
Press enquiries through Headland 
 
Toscafund Asset Management                    Tel: +44 (0) 20 7845 
                                               6100 
Investment Manager to the Group 
Adam Dickinson, Investor Relations, Regional 
 REIT Limited 
 
London & Scottish Investments                 Tel: +44 (0) 141 
                                               248 4155 
Asset Manager to the Group 
Stephen Inglis 
 
Headland PR Consultancy LLP                   Tel: +44 (0) 20 3805 
                                               4822 
Financial PR 
Francesca Tuckett / Jack Gault 
 

About Regional REIT

Regional REIT Limited (LSE: RGL) is a London Stock Exchange Main Market traded specialist real estate investment trust focused on office and industrial property interests in the principal regional locations of the United Kingdom outside of the M25 motorway.

Regional REIT is managed by London & Scottish Investments, the Asset Manager, and Toscafund Asset Management, the Investment Manager, and was formed by the combination of two existing funds previously created by the Managers as a differentiated play on the expected recovery in UK regional property, to deliver an attractive total return to Shareholders and with a strong focus on income.

The Group's investment portfolio, as at 30 June 2018, was spread across 151 regional properties, 1,294 units and 950 tenants. As at 30 June 2018, the investment portfolio had a value of GBP758.7m and a net initial yield of 6.4%. The weighted average unexpired lease term to first break was 3.5 years.

The Company's shares were admitted to the Official List of the UK's Financial Conduct Authority and to trading on the London Stock Exchange on 6 November 2015. For more information, please visit the Group's website at www.regionalreit.com

Cautionary Statement

This document has been prepared solely to provide additional information to Shareholders to assess the Group's performance in relation to its operations and growth potential. The document should not be relied upon by any other party or for any other reason. Any forward-looking statements made in this document are done so by the Directors in good faith based on the information available to them up to the time of their approval of this document. However, such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.

ESMA Legal Entity Identifier ("LEI"): 549300D8G4NKLRIKBX73

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November 15, 2018 02:00 ET (07:00 GMT)